We usually show developments with the U.S. Dollar Index via the Invesco DB US Dollar Index Bullish Fund (NYSEArca: UUP). Tracking the Dollar informs our subscribers’ trades in paired currencies, particularly the Euro and the Yen.
The small downward retrace we predicted at the end of October worked very well, making a quick 2% decline from 26.12 to the January low of 25.19. (The nearby target levels on our October chart were 26.19 and 25.15.)
Then the upward reversal we identified soon after the January low proceeded as expected, taking price to a new two-year high this past Thursday. That local high represented a test of the 26.42 resistance we showed in January, which is still a meaningful level on the current chart.
We expect UUP to overcome the nearby resistance fairly soon, but the level itself might present some opportunities for trades based on a breakout and quick retest of resistance-turned-support. Alternately there are minor support areas near 26.16 and 26.00 that could serve as a platform for the next upward segment.
The main reason we expect nearby resistance to break is that our primary Elliott wave scenario has been working so well for the Dollar and UUP. As readers here know, the third wave in an impulsive move usually is the strongest one. At present we believe price is working through the third wave inside a larger third wave.
As a cautionary note, the Lomb periodogram (the fast-response estimate of price/time cycles) suggests a downward retrace or consolidation might be needed now. Any such pause might be brief though, because upward momentum is so strong right now.
Upward Fibonacci-based targets to watch for wave ‘iii’ of (iii) to reach after a breakout include 26.76, 27.19 and 27.65.