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U.S. Dollar Is Setting Up For A Big Move

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
July 31, 2013

The U.S. dollar is now setting up what one could view as a very low risk potential long trade. The risk-to-reward ratio is now exceptionally compelling when one considers how deep this expected pullback has become, and the potential upside targets that may yet be seen over the next few months. In fact, it is so compelling, that it is the first time that I have ever entered a trade on the dollar.

While one can count the rally off the June lows in the dollar +0.39% as impulsive, there is also a count that can be seen as corrective. But that really does not matter as much, since the manner in which it has pulled back off the recent highs is clearly corrective at this time.

In fact, our 144-minute chart on the DX has been one of the most accurate I have ever seen in giving us early warning signs of a potential trend change in the dollar. And right now, this pullback is looking like a textbook a-b-c corrective decline, with clear positive divergences in the c-wave relative to the a-wave.

Even within the c-wave, we are getting the type of divergences that are signaling that the c-wave is nearing the end of its decline. And for now, the DX has stopped right at its .764 retracement level of its prior rally.

So, at this time, while I can still see the potential for the DX to drop as low as the 81.25 region before the next rally begins, which is where the a-wave decline would equal the c-wave decline, as long as we remain over the prior lows of 80.61 (and the 80.50 level in the DXY), the potential for the DX to see the 90 region does exist.

But assuming that the move off the lows in June was corrective, my minimum target region would be the 85.70 region. In either case, this makes the downside potential approximately a dollar, while the upside potential is a minimum of four dollars, and as much as 10. These are the types of risk-to-reward ratio trades one should always be looking for, even if some do fail.

And even though I was wrong earlier this year in expecting the larger drop in the dollar to have begun already, this next rally should set up that larger drop from much higher regions. 

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of, a live Trading Room featuring his intraday market analysis (including emini S&P500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education. You can contact Avi at: [email protected].

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