DXY - The Floor Is Starting To Creak

This week the U.S. Dollar Index (DXY) continued to move lower after what I counted as 5 down off of the 98.34 high and into the 97.12 low that was struck on May 1.

On Friday we tested that 97.12 level, but have yet to make a clean break of the May 1 low. If we can indeed get back through the 97.12 low, I then would want to see a full 5 wave move of one larger degree complete down towards the 95 area to give us additional confirmation that a top has been struck.

That 95 area is also a fairly significant level from a price perspective as moving through that level moves us below the wave ((iv)) of the Ending Diagonal which helps confirm a top.

Now because we are likely dealing with an Ending Diagonal when this pattern completes, we should see a very sharp reversal back down towards the origination point of that Ending Diagonal.  In this case, that origination point comes in at the 93.19 level which may only be a wave ((i)) of a larger wave (C) that should ultimately take this back down towards the mid to low 80s. 

So while we do still have a bit more work to do before we can confirm that a top has been struck given the very full and overlapping pattern that we have in place combined with the potential 5-wave move to the downside, I am certainly quite cautious to the upside on the DXY at the moment and the short setup is still looking quite promising.

$DXY - (1 day)
$DXY - (1 day)
Michael Golembesky is a senior analyst at ElliottWaveTrader covering Forex, the S&P 500 and the VIX. He contributes frequently to Avi's Market Alerts service at EWT while also hosting his own VIX Trade Alerts service and co-hosting the EWT Forex service.