USD Index

I haven't blogged about this since mid-April when the chart was rather messy looking with four doji in a row. The chart remains somewhat messy with upper and lower shadows on the candles. As a result, even though the pair has been drifting upwards, I wouldn't start assuming its an unfettered trend to new highs yet.

On the daily chart you can trace out legs A and B of what could be an ABC correction as part of an Elliott Wave (EW) expanded flat correction. Until the last couple of days I thought perhaps we were in a zigzag correction but if that were true than leg B couldn’t exceed leg A and it has done so with yesterday's high of 82.71. (Wave A was from the 3/25 high of 82.24 down to the 4/14 low of 80.03 or 221 points). To be a flat correction, there are four rules:

1) It always subdivides into three waves (this looks potentially realistic)
2) Wave A is never a triangle (it wasn't)
3) Wave C is always an impulse or diagonal (we'll have to wait and see)
4) Wave B always traces at least 90% of wave A. (So far it has retraced 268 points compared to wave A's 221 points so it has done so. Being more than 105% of Wave A allows it to be categorized as an expanded flat).

How far could this wave B go? Up to 138% is the guideline which would bring it to 83.08. By then price should turn back down into wave C. Wave C is usually between 100 and 161.8% of A so, if yesterday's high of 82.71 holds, one could expect lows from 80.50 down to 79.13. It would be great to have such certainty but EW is hardly perfect. Still, it's an interpretation.

The uptrend lines on the chart and prior lows suggest that a touch of 80.18 to 80.50 should prove to be support. If the index starts to falter there it lends a bit more weight to the EW projection of possibly going down to 79.13.

The other thing to note on the chart are those shadows. Shadows, up or down, represent indecision. This is a nervous market—risk averse one day; willing to bet the farm the next. Eventually it will sort itself out but for now that's what the reality is. Maybe it is Mercury Retrograde as the astro bunch keep saying. As traders, though, we don't need to know why but rather what and the what is that things are tricky right now.












© Dianne Fecteau, 2010. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.