Is the Dollar Ready for Another Move Lower?

We saw the dollar take a dive from it’s recent high back to the 233-day moving average, and bounce from that area. But is the Dollar ready for another move lower?

The US Dollar Currency Index ($DXY) was setup in an ending diagonal (or rising wedge) formation heading into the month of October. Displaying 5 waves up within the wedge, accompanied by negative divergence into a notable downtrend left the Dollar vulnerable to a break and move lower. This chart was shared with twitter followers on September 30:

dollar lower from Sep 30 ending diagonal formation

While the potential was there to invalidate this setup with a push above 100.11, price failed to do so. Several sessions later, we saw a downside break of the wedge, implying that structure and count was accurate and that further downside would be expected as a corrective move looked as though it may be ensuing.

The diagonal formation is typically a topping structure, often concluding a 5 wave advance. The diagonal formation diagram below is shared from the Market Structures Module of TraderMentality’s Elliott Wave Analysis Training videos, and aligns well with the price action of the Dollar Index during the break down.

Indeed, $DXY saw a sharp 5 wave decline from the highs of the wedge, just undercutting the 233 day moving average. Now we’ve seen a quick 3 wave bounce move to rally to the 50% retracement of the 5 waves down.

The current structure may very well play as a wave (a) – (b), about to kick off another 5 wave decline to print (c).

dollar lower after ending diagonal break

Based on the size of wave (a), and the rallying counter move for wave (b), an ideal decline for the final wave (c) would be likely to take price below 96 before completing the corrective move. Near or below that area would be a notable spot to watch for positive divergences and a concluding wave (c) that may see a rally following an upside turn. For now it would appear that further downside seems favorable.

TraderMentality’s premium service tracks $DXY on a regular basis and posts weekly, daily and 4 hour charts to the Weekend Game Plan report (unlocked sample) that is available to members each weekend. You can gain access to these weekly reports, real-time trade alerts, daily market reviews, educational content and much more by joining TM Prime.

Is the Dollar Ready for Another Move Lower?

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