Dollar Index - Potentially in Bearish Configuration

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There is so much talk amongst market commentators, professional fund managers, major banks and trading community about potential QE tapering which is USD positive.

If that reasoning holds then my question is why did the USD sell off strongly on the very day or at the moment QE tapering was mentioned.

If all participants have read too much in to QE Tapering and are disappointed, what will be likely impact? Could the USD have held up for too long on hope?

From chart perspective, I think we have potential diamond pattern being develop which could be either a reversal or continuation pattern. Even if the diamond pattern forms or fail to do so, from Elliott wave counts labels on my chart I think we have recently formed very significant top which is also a running flat wave (4) on larger time frame such as weekly or monthly (see Monthly chart below originally identified in September 2012 http://www.screencast.com/t/AwUQ6tdWlqX ). I understand that I could be a lone voice on such bearish view of the USD over next 12-18 months period during which we will continue stair casing down to possibly form new lower low, before final low is formed.

I have checked longer term USDCHF             & USDCAD             charts to help confirm longer term view. If correct I anticipate a major directional trend to develop soon out of the long side way congestion area.

Anyway, hope it will help you to cross check or refine your own analysis to enable you to be on the right side of the market.
After a big decline middle of last week, we seem to have tried to bounce or paused on low volume, indicative of resumption of the down trend for the coming week in DXY

Shorter term chart you can see what I mean based on my analysis and EW counts
Danny... could dxy just have completed abc-x-abc?? so bull mode until 'C' is complete... the big monthly triangular trendline connecting the highs surely needs to be hit again?
Monk Monk
sorry... i mean just abc. C is about to end - think maybe one more final wave 5 of 5 down. then the DXY goes to 87 ish... THEN down for a looooonnnnnng time...
To be absolutely clear, The price action has not been entirely clean. So whilst what you say might prove correct, I am of the opinion that we have the top in DXY an the decline we have had so far since BEN mentioned QE taper little while back is in early stage of down trend being developed. Like wise when you take it with all other factors, such as possible bottoms in NZD, AUD, CHF breaching the support and EUR posting HH & HL I think DXY is now likley to continue and gather more momentum to the downside. The price progression I see is as per my chart below on shorter term time frame
Monk DanV
Cool... love your analysis, which is why i keep coming back :p ... the only argument I can think of against your scenario now is that you're expecting a massive dollar up move in the future, which would be a deflationary collapse. The fact is that Big Ben didn't taper... will central banks allow the natural process of deflation to occur, or will they print into perpetuity until the fiat is crushed into oblivion... I believe the latter. But even then, can the central banks even create enough inflation... well, so far they have been able to at least in terms of food and the stock market amongst other things. So I'm looking at a hyperinflationary collapse scenario in the distant future... i mean they've already killed like 95-7% (can't remember the stats) of the dollar so they may as well finish the job! What do you think?
Excellent observation. When I try to link in the fundamentals with chart on this sort of scale, it worries me and also have hard enough time to come up with possible reason to justify my view. My view is that at the end of this decline when DXY post low in the region of 70 or probably more like 68 area, that would be major end of 5 wave decline. Like you say we have lost over 95% of USD since say 1914, ie 100 yrs. So if indeed the end of this major 5 wave decline ends, then we have corresponding retracement to follow. I am not intending to show the magnitude of retracement but the general idea. However, when to consider that based on EW at the end of wave 5, we could retrace back to wave 4 top on next lower degree, that equates with 1984-85 high in the region of 170. Not necessarily in few years, but dacades. If the decline last for 100 years or so then 25% of the time would suggest may be 20+ year of receive in USD. During Rising USD I suspect Equities will suffer badly, and that to me indicates lasting fear being the only reason why USD would rally that much without the sound support of economical recovery as reflected in weak stock market. But that is really running ahead of our selves and hence the dilemma I face like everyone else to appreciate exactly what factors will cause what charts is suggesting. So apologies for being unclear in my reply.
There is lot riding on FOMC announcement due this week. Regardless of the out come, DXY is likely to have a bullish week. At least till Wednesday when it is expected by the entire investment community that all will be revealed. Based on my EW counts I would not be surprised for DXY to retrace back to 82 level as smart money use the occasion for final opportunity to sell USD at higher level before we decline in wave (iii) of 3, which is know to often extend. So most of the USD pairs will retrace respectively before real directional trend starts that could last for several months with usual retracements along the way. Here is the Hourly chart of USD & my interpretation.
thanks for sharing ... !!!
great work, above all because I ve got the same view :)
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