Elliott Wave on the USD: At an Important Juncture

By: Dan Stinson | Sun, May 7, 2006
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Short Term Forecast

There appears to be confusion on the future direction of the USD, so we usually send out newsletters during these times to help investors get a handle on what could occur. Our Elliott wave count indicates that we should soon see minor upside in a sideways 4th wave correction to the 85.5 - 86 area. This will be followed by another brief move lower in wave (5), before a larger rally in wave [c] to at least the previous wave [a] December 2005 high. The current target is between 94-96 with 100 possible.

The longer term chart illustrates that wave [b] will complete soon and a rally in wave [c] will follow.

The short term chart above indicates that a minor sideways rally should begin in the next few days once wave (3) down completes. This rally in wave (4) up, will be followed by wave (5) down which should complete wave [b] down. Once this final wave down completes, the USD should move higher in wave [c].

Notice the corrective action on this chart. This corrective action follows a 5 wave advance that ended in December 2005, which is indicated on the first chart. On the second chart, we can see 3 waves down, followed by a contracting triangle and then a decline in wave [C] down. These 3 waves now form a larger 3 wave correction, which is almost complete. All of these waves (ABC), indicate that the advance from the 2005 wave (5) low is not complete. The recent sharp decline in wave (C) can be confusing to many, since it appears that the decline has just started to escalate, when in fact it appears it is closer to completion. Wave C's and wave 3's are the fastest moving Elliott waves and it doesn't fit as wave (3) down at this juncture.

There are few that do not expect further downside in the USD for the long term, but it's how it makes it there is the important question. We see another advance in wave [c] for wave [II] up which will set the dollar up for the next decline in wave (III) down. This is where we should see the sharp steeper downside that is expected by so many.

Our charts for the CAD and the EURO also support the count for the USD.

At this juncture we expect a rebound in the USD, but these charts are only a guide so that you can follow the action and watch for the expected bottoming action. The action could play out exactly as illustrated or it may need adjustments as we follow it through. We currently do not have an Alternate count, since the decline from December is corrective.

Here is a question you may ask.
How could the price action change, for us to view the count differently?

Ok, first, we still need to see wave (3) down complete this week which will be followed by the brief 4th wave correction. When wave (5) of wave [C] down completes, we still need to see another rally. We will need to see this rally move above 88 in an impulsive fashion to confirm the wave [c] count. A move below 84 in waves (3) or wave (5) down could also alter our view.

So to re-cap, we should see a brief rally next week, followed by another brief decline and then followed by a larger rally where we will confirm or negate the current count.

On another note, we are following other markets that are very close to an important juncture as well. They include, the DOW, the metals and Crude, but all three will not be moving in the same direction.

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Dan Stinson

Author: Dan Stinson

Dan Stinson
Elliott Wave Chart Site

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