Do We Still Need Another High in the DXY Before Topping?

Overall there was still very little change on the U.S. Dollar Index (DXY), although we did creep a bit higher towards the end of the week. This is supportive that the DXY may still need another high to finish off the ending diagonal off the June 2018 lows to finish off the pattern.

As noted last week:  The overlapping, sideways action we have seen in the DXY is action we have not seen since 2013-14, when the market was setting up to rally strongly.  At this time, we are seeing a similar type of overlapping consolidation, but with the expectation of the opposite price action, since we are topping now relative to bottoming back in 2013-14.

In the smaller degree structure, we were not able to hold support for an impulsive rally structure, which means that any further upside will likely be as an ending diagonal in the c-wave of the wave v of C in the (B) wave, which can be seen on the daily chart. This diagonal may not yet quite be done and still need another push higher to finish off wave ((v)) of C of the larger degree (B) wave.

Since our expectation is that we will see a (C) wave decline once we complete this topping process, and c-waves are usually impulsive 5-wave structures, the fact the downside seems corrective in nature suggests that market is likely going to still try to stretch a bit higher prior to topping.

But, with as high as we have come, one has to recognize that the downside potential far surpasses any further upside expectations that I have left, and the pattern to complete this (B) wave has gotten quite full. A break of the 95.03 level followed by the 93.81 level may act as an initial signal that a top may have been struck but again I would want to see a full five-wave move to the downside to give us further confirmation that a top has indeed been stuck.

$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.