After making an all time low of 71.05 in April ’08, Dollar Index bounced back up to 89.25 by November ’08, retracing between 78.6% – to -89% of the drop from the previous high of 92.53 reached in November ’05, arguably, driven by the fear trade in the aftermath of ’08 financial crisis.
For the next couple of years, the index kept up with the risk on/off trade. It rose when the S&P 500 was falling – from Dec ’80 to March ’09 – and fell when the S&P 500 was rising – from March ’09 to Dec ’09. (See chart below – Dollar Index is the candle chart and S&P is the line chart).
There was a change in the inverse coreelation with S&P 500 when the European crisis of PIGS came to full force. Dollar index rose from December ’09 to June ’10 along with S&P. It effectively made a triple top in June ’10.
After failing in its third attempt to take out the highs of November ’08 and March ’09, the index fell to new low – since July ’08 – in a couple of ABCD moves.
First ABCD move down
A1 (07-Jun-10) – B1 (02-Aug-10) – Points: 8.930; Duration 8 Weeks
– B1 was in a support zone formed in March-April ‘10
B1-C1 (23-Aug-10) – Points: 3.465 – 38.8% retracement of A1-B1; Duration 3 Weeks
C1-D1 (01-Nov-10) – Points: 8.400 – 94.06% of A1-B1; Duration 10 Weeks
– D1 was also in a support zone formed in November ’09.
Second ABCD move down
A2 (23-Aug-10) – B2 (01-Nov-10) – Points: 8.400; Duration 10 Weeks
– A2 is same as C1 and B2 as D1
B2-C2 (10-Jan-11) – Points: 6.400 – 76.19% retracement of A2-B2; duration 10 Weeks
C2-D2 (02-May-11) – Points: 8.775 – 104.46% of A2-B2; Duration 16 Weeks
– D2 was in a support zone formed in ’08.
During this move down, the index also coupled with risk trade. It fell when the S&P was rising.
After reaching near the all time low, Dollar index went sideways for 16+ weeks. It was a period when Greek/European crisis again came to forefront.
Dollar Index broke out of this sideway channel in Sept ’11 and got in step with S&P’s upward move.
Since then its upward trajectory is also in an ABCD pattern.
A3 (15-Aug-11) – B3 (03-Oct-11) – Points: 6.915; Duration 7 Weeks
– B3 was below the resistance zone formed by C2 of earlier move.
– It is also within the measured target range out of the channel breakout formed by P1-M1-A3 (10-week duration).
B3-C3 (24-Oct-11) – Points: 5.570 – 80.55% retracement of A3-B3; duration 3 Weeks
C3-D3 (09-Jan-12) – Points: 7.185 – 103.9% of A3-B3; Duration 11 Weeks
– D3 was also in a resistance zone of C2.
Like the previous congestion that it formed in April-August, Dollar index again formed a 16 weeks congestion zone in 2012. It just broke out of the intermediate high of this congestion area (P2-M2-A4: Duration 9 weeks). Again, the invesre correlation with S&P is begining and the Greek/Eruo crisis is retaking the center stage.
If the index is going to keep to the form of the past then, it may be forming another ABCD move up. The target for B3 based upon the measured move out of the current horizontal congestion area is around 83.60 and the time target is in late June early July. The target will be in the resistance zone formed by C1.
The pattern P2-M2-A4 is also mini ABCD pattern. Dollar index has already reached AB=CD measured move of this pattern. The next target for this pattern is 1.62 times of AB move, which will be in the same target zone of 83.60.