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Decline In The U.S. Dollar Is Likely Not Over


Mar 2, 2014
Taiwan, Province Of China
US dollar has seen a steady decline since March.
Resistance levels are clearly in place moving forward.
Price target levels to watch in the coming weeks and months.
This idea was discussed in more depth with members of my private investing community, The Market Pinball Wizard. Get started today »

After seeing a sharp run higher into the March highs of this year, the US dollar has seen a steady decline of just about 10% from those highs. For the most part, the decline off of the March highs has come with very shallow retracements but over the past several weeks has seen a bit of a reprieve as it has retraced higher after forming a local bottom in early September. This bottom may, however, not be lasting as the pattern down off of the March highs still looks incomplete and is suggestive that the US dollar still has some unfinished business to the downside before a more lasting bottom is found.

Looking at the daily chart below we see that the recent rally up off of the 91.75 low has come in the form of corrective wave action and has held under the key resistance levels that I have laid out on this chart at the 95.23-96.28 zone. This price action and hold under resistance is giving us initial confirmation that the primary path shown in white is indeed playing out and we likely still need yet another lower low to finish off this larger wave (A) to the downside prior to seeing a larger bounce back higher. Assuming that we do indeed follow this white path lower and break the 91.75 low, then the downside targets under this case come in at the 90.29-87.73 zone. Once those levels are achieved then the US dollar may see a somewhat lasting bottom that could see the DXY index retrace back higher back up towards the mid to high 90s in what could be a several-year retracement period for a larger wave (B). Once this retracement is completed, then I would expect to see a rather sharp move lower back below the most recent lows, ultimately taking the US dollar back down towards levels not seen since 2014.

Should the US dollar see a break back over the 95.23-96.28 zone, then I am still leaving an alternate path laid out in green on the charts. This is far from an ideal scenario and not my preferred path but it is the most reasonable bullish alternate that I can come up with at the moment. So for that reason, I will leave this on the charts as the alternate path as long as we can hold over 92.76. Below that level and this green path would become much less likely and give us even further confirmation that we are indeed following the primary white path down towards those low 90s to high 80s.

So overall, the DXY has been following a very clean pattern that has been laid out quite well over the past several months. While the micro timeframes have not been terribly clear, the larger degree pattern has been quite clear and reliable. For that reason and as long as that remains the case, I see no reason to change the analysis and will continue to keep following this lower as we move forward in the days and week ahead and continue to look lower in the near term.

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