Be alert for the US dollar to cycle lower: Tony Caldaro's Objective Elliott Wave special review

There are times when the market approaches an important juncture involving the US dollar and the stock market (affecting other markets too). We appear to be in a time window like that now. Either the stock market gets pushed back from the 1229 $SPX Fibonacci level (retracement to the October 2007 highs), or it may push higher in an inflationary continuation along with the dollar weakening further. Well - they don't always have to move inversely from one another ... that's just the general relationship these days. And note that the Nasdaq is poised now to exceed its October 2007 highs. It's instructive for us to understand Tony Caldaro's November 30, 2010 update analysis of the dollar, titled "USD index (DXY)". I give Tony's analyses a lot of respect; while I do continue working on my own alternatives, plus taking into account other approaches. While I'm not certain whether to sign onto Tony's projections for the dollar, I'll say it fits with my bullish projections for the yen ($XJY) and could go along with the stock market breaking out above Fibonacci resistance. So instead of being complacent, let's stay alert and educated ... and read his analysis. This is quoted (thanks again Tony!) at his "the ELLIOTT WAVE lives on" website, at http://caldaro.wordpress.com/2010/11/30/the-usd-index-dxy/

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We have done some extensive time cycle research on the currencies this year and have reported some of our findings in a recent post:http://caldaro.wordpress.com/2010/10/06/the-currency-time-cycle/. This is an update. The chart above displays the USD (DXY) movement since its major SC top in 1984. The decline from this top took the form of a double zigzag ending with a failed C wave low in 1995. We labeled that low Cycle wave [A]. An ABC counter rally followed into 2001. We labeled that Cycle wave [B]. Notice there were 17 years between the 1984 SC top and the 2001 Cycle wave [B] top. After the 2001 [B] wave top the USD started another double zigzag decline. Thus far we have a confirmed completion of only the ABC-X portion. We're expecting a long term 17 year cycle low in 2012 with a completed pattern around the mid-60′s level.

The weekly chart provides a closeup view of the past several years with all the (trends) waves labeled. Notice we have tentatively labeled the 2009 low at 74.23 as Primary wave A and the 2010 high at 88.71 as Primary wave B as part of the second zigzag. The market will need to confirm these waves as we move into 2011/2012.

This month the USD has entered a confirmed uptrend after a couple of attempts during its recent five month downtrend. We labeled this low as Major wave A of the likely Primary wave C decline which started at the June 2010 high. We have also noted a band of overhead resistance for this uptrend between just under 84 and just under 87. The USD typically gets quite overbought on the weekly RSI during an uptrend. Then it ends it with a negative divergence. Currently it has just reached a slightly overbought level.

When the USD is in an uptrend it normally implies investors are becoming less risk oriented; i.e. scaling back on positions in equities, commodities, etc. While this is noteworthy, it is not necessarily a negative for these markets unless the USD moves sharply higher. Should the USD break through the lower band level, just under 84, then a correction in these other markets is nearly certain. Compare the price action in the USD to the SPX, using the weekly chart, to observe this relationship. Best to your trading!