U.S. Dollar hit the easy target - now what (and why we should care)

The U.S. Dollar index ($USD) is central to what's happening in financial markets now; not by causing events but very well reflecting them. It made a spectacular intraday reversal off the area just over 80 which was a target. In a way, it was the easy target because it's a combination of a potential c=a symmetry, retesting to prior price consolidation, and retesting a prior Fibonacci level it broke under on the way down from the highs around 90. But now what? If the dollar reverses back down, other markets like equities and commodities should rise again. Maybe the dollar will reverse from here. There's also another somewhat higher level, about 82, which was also previously important support - and is the level where it would retrace 50% back to those highs (about 81.9 so I'll call it 82). It's one of the levels to keep in mind now. Main question is, will the dollar reverse and drop, either from here or from 82 in the $USD dollar index - even to new lows? Put another way, will the euro make a low now or soon, and recover to new highs?

Fundamentally people care because a weaker dollar helps U.S. companies sell goods and services abroad. It also makes it "cheaper" for foreign companies and people to invest in the U.S., travel to the U.S., and buy its products and services. But there's another role, which is that investors bid up the dollar when it looks like a flight-to-safety play and to be risk-averse when other investments - or countries - look too risky.

We care because of the remarkable correlations against other tradable assets. And because many traders trade currencies. So we really want to know on a big scale whether or not the dollar will fly up to retest the 90 level in the dollar index. Some think it will, as a "C" wave where the bottom about 74 was a B wave (I think that's possible, or it might be part of a large triangle that hasn't finished yet). Others think the dollar is moving up impulsively to vault far beyond 90 $USD (I don't believe that's the case, which is a reason I remain long-term bullish on gold). I suspect that the dollar can move up higher, maybe even retest 90, but not guaranteed - it could well get above 82 to achieve a Fibonacci retracement of .618 or .786 back toward the 90 area.

So let's review. Reversing from here is one possibility - but I've got a nagging sense that's too easy. That "bull flag" it broke upward from looks too robust, IMO, to support simply this quick poke up to 80. The dollar index could also extend a bit up to 82 (and I've seen a euro projection to $132, maybe that "fits"), as equities test a bit lower (like the SPX to 1030), and then turn. If this happens, it could take a bit of time with deceleration of the trend and then working out a reversal pattern that incorporates the 82 level and lasts into the month of March.

I did say there's at least another possibility that the dollar may proceed much higher. One reason I continue to allow for this is that the recent consolidation it moved up from, looks rather bulky to be the "b" wave of an "abc" zigzag. A zigzag should complete at about 80 or 82 (c=a symmetry). If it's working out a triangle, then this part of the dollar's move up could easily get to 84 or better, 86.50 - 87 in the $USD, before this upwave is done. It would be a sharp movement up if it happens by early March, but triangles are composed of sharp zigzags. Still, the protracted move down that poked to 74 doesn't look much like a zigzag. So it remains possible this dollar move is only a correction that, when done, allows the dollar to make an important new low as suggested by Andy Askey's Gann work.

For the bigger "C" wave up idea - If the most recent spike up isn't a "c" wave but instead the first wave of a third wave up, then after a little wave 2 pullback it would move persistently much higher. The scenario I'm thinking of would be more likely a larger C wave where the low under 74 was a B wave.

I don't have a firm Elliott Wave count in mind, but actually do have a preference on the dollar's projection from here, and that is for a count that would result in the dollar making a substantial low (probably a new low) in May or August. Partly because of Andy Askey's Gann view (posted about a week ago here), and partly because of Terry Laundry's T Theory projection of equities making new highs in May and August. Also because of currency cycles views suggesting that the dollar and euro are making corrections now that will complete into March, and then support such moves by equities.