une 19, 2012 in Currency, EUR/USD, USD by ShivakkumarVadiveyl
Technical Analysis of US Dollar Index and EUR/USD
This article presents the Technical Analysis of US Dollar Index and EUR/USD Pair.
The USD has enjoyed a good run up in
recent months and many are starting to attribute it to the recovery of
the US economy. The real fundamental reason for the rise in USD is due
to its reputation as a safe haven currency. The Euro has come under
tremendous pressure as the credibility of Euro is being questioned due
to the debt crisis that has developed in the Eurozone countries.
Naturally, in such situations, investors look for safe havens and the
currency that stands out is the USD.
Let us analyse the US Dollar Index since
the inception of Euro. As can be seen from the below 9-Day Chart of the
USD, the USD has been on a steady decline since the inception of the
EURO. This is a fundamental reason as the Eurozone started to trade in
Euro rather than in US Dollar and hence, there is a lesser need for
businesses to hold USD. Naturally, the USD was sold in exchange for the
Euro which steered the Euro higher and USD lower.
USD Index 9-Day Chart
The decline in USD was quite steady and
we can label the Elliott Wave counts quite clearly in five impulsive
wave down to 2005. From then on, the USD went on a sideways pattern
which is encompassed in a contracting triangle. The contracting triangle
is a continuation pattern which tells us that we are likely to see USD
going further lower once the triangle is completed. I can’t present a
bullish count as the upwards moves are corrective rather than impulsive.
Based on the below chart, the Elliott Wave count for USD is that
Primary wave [A] completed in five wave impulsive fashion and Primary
wave [B] is either in progress or has completed. The next move of the
Primary degree is expected to be Primary wave [C] to the downside. It
would either be equal to the length of Primary [A] or 1.6 times Primary
[A].
Let us now zoom in to the 2-Day chart of
the USD. The chart starts from the top of the alternate Primary wave
;[B] of the 9-Day chart. The move down is most likely a w-x-y correction
to complete Intermediate wave (D). The alternate count is that this is a
five wave impulsive move to complete Intermediate wave (1).
USD Index 2-Day Chart
The move up that transpired after that
has been a choppy move with a lot of overlapping candlesticks. I’m of
the view that this move up is a complex w-x-y to complete Intermediate
wave E of Primary wave [B]. The alternate view is that this is a
Intermediate wave (2).
Let us consider this move up
independently with out including the previous moves. It is quite clearly
a choppy corrective move with a lot of overlapping waves. We could
however label it as a 1-2-i-ii formation which is a bullish case if we
used some creative labelling which I am not in favour of as Minute wave
[w] is not looking like an impulse. The best count is to label this as a
w-x-y. This leads us to the next question of the target levels. Based
on Elliott Wave Principle, the Y of w-x-y should have some Fibonacci
relationship to W and is typically 1.6 times W. For the Minor waves (in
amber) that gives us a target of 87.25. If we then use the same method
for the Minute waves (in light blue), the possible target levels are
86.90 (123.6% of w) and 87.91 (138.2% of w). The target levels are
clearly pointing to further upside.
EUR/USD Pair
Let us now consider the Daily Chart for
the EUR/USD. The down move starts from the top of May 2011 which is
encompassed in a channel. The EUR/USD chart looks very much like an
inverted USD chart. The same w-x-y formation can also be clearly seen in
this chart but in this chart, it is progressing towards the down side.
The down moves are clearly stronger and the up wards moves have been
much weaker. Using the similar Elliott Wave guideline, we find that the
possible targets for this move is around 1.18 – 1.19 region and 1.12 –
1.13 region.
EURUSD Daily Chart
Finally, we present the hourly chart of
the EUR/USD Pair. This chart is presented to find the possible move
going forward for the near term as the previous charts are for the
intermediate to longer term views. We zoom in to the region highlighted
with the green line in the previous daily chart. As can be seen clearly,
this move is a very choppy corrective move. It looks like wave (a) up,
followed by wave (b) in a expanding triangle and wave (c) in a
corrective upwards move. Pay attention to the price bars right after the
completion of wave (c). It is a downwards move in an impulsive fashion
which indicates that the pressure is towards downward direction. This
means that the EUR/USD is going to head lower with the completion of
this corrective wave.
EUR/USD Hourly Chart
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