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 US Indices, the US Dollar, and the VIX. He contributes frequently to Avi's Market Alerts service at EWT while also hosting his own VIX Trading service.