Market Analysis | What's Up With The Dollar Index DXY?

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The Dollar Currency Index is a way of judging the strength of the Dolar against other currencies

There are some interesting long term trends that should be worth talking about. This is the monthly chart:

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It goes all the way back to 1986 and makes the zig-zag movement quite clear. There are a couple of things that stand out.

  • The index has been moving in a downward channel
  • There have been three major upward rallies
  • There is a strong 3 wave pattern

The two most recent macro rallies have been marked with yellow. Those are ascending wedges that seem to lead to a crescendo and then a correction. However, the most recent one broke out of that pattern early.This might indicate that it won't reach the peak.

In the next charts look at the 3 wave pattern.

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One can see this pattern at every scale and I just marked some. I am sure you can find more...

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If we want to make a prediction for the DXY, we should take this characteristics into account. Based on the 3 wave pattern and the ascending wedges I think we can propose two scenarios that seem quite likely.

The first one shown in purple would suggest a correction following after catching up to the resistance from the last several peaks. This resistance should be very strong as there is a strong trend line there as well as historical price resistances at this level. It also corresponds to the psychological "100" number.

The other scenario shown in green would suggest one more last push upwards to the macro resistance coming from the previous highs. This level should be equally hard to overcome and corresponds to ~110.

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Both of these scenarios ultimately would suggest a strong correction down to the macro support line at around 65. Also note that this would satisfy the 3 wave pattern observed as both scenarios would complete the third wave. This would entail a 3-5 years correction phase - so nothing too quick, but very bearish.

 


As a general reminder: Please keep in mind that none of this is official investment advice! Crypto trading entails a great deal of risk; never spend money that you can't afford to lose!

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