Due to almost vertical move in DXY since May 2014 low, has lead many to think that Dollar is so strong that it would just continue in parabolic rise without even normal retracement.
I accept that everything in the public domain in terms of fundamentals suggest that Dollar ( DXY ) should continue to attain much higher levels which is feasible and in that case we might only get a retrace before continuing higher.
However, there are many factors at play and often very hard or near impossible for us as retail traders to weigh all these and give correct scoring to arrive at a specific level on back of that. But many things could come right out of the blue and seemingly unexpected like the SNB dropping the peg with EURUSD .
It is very probable that the BOJ's has possibly been used by many leveraged funds investing in USD and this could prove to be a potential problem, in that if this was to reverse the tide will turn and could be major catalyst for initiating USD weakness. In fact even Japans Authorities have acknowledge that the weakness in YEN and particularly the speed is not justifiable by fundamental. They also seem to think that Leveraged Funds are the real reason for the pace of YEN weakness.
Regardless, whilst it not possible to state that this will be a major top (though I think it is very likely), at least is now due for normal retracement. If it is to retrace then normal 50% -61.8% of it's rise since May 2014 is to be expected.
Reasons for possible topping (intermediate or reversal) zone are:
1. It has almost retraced 50% of the move from 2001 high to 2008 low and other fib clustering in the region of 93-94.
2. Has reach the upper extremity of the rising trend channel from 2008 low.
3. The move up from April 2011 low appears to be an ABC . If correct, then wave C of the is now nearly complete with minor 5 waves clearly visible. So even if it make new higher high from here this would be completing the final wave v of 5.
4. is fully extended and is approaching 58 on weekly chart with 50-60 often considered the upper limits of the .
5. is showing potential divergence with price suggesting buying pressure is weaker compared with the previous high in this cycle.
6. On (see image below) divergence is clearly visible and the last gap up at 91 could be potentially an exhaustive gap which normally appears towards completion of the cycle.
7. Possible time symmetry (see monthly chart) suggest that Jan 2014 is very significant month.
If we have the anticipated retracement or reversal in DXY , then to varying degree this would be reflected in all USD related assets such as Oil , Gold & Silver etc and USD Currency Pairs.
Hence any trades based on USD strength should be managed well so as not to be caught on the wrong side.
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I am suggesting that whatever is to follow, DXY will at lease retrace for several weeks. I don't know how, but the move since May 2014 is very mature and normal market structure argues for retracement even 38.2% of the move from May low.
Nothing goes in straight line. I am not saying it will drop from today. Even if it mike new marginal higher high from today's level for few days more even a week, it still has potential for retracement ahead.
So one to watch in my view
But as alternative what could develop is that the move of the May 2014 low become larger wave 1, we have retracement as wave 2 and then 1 -5 wave cycle that could conclude much higher as you are suggesting. I am not dismissing that possibility right now.
The focus is on retracement at the minimum and the nature of that retracement would give clue for future price action. Hope this helps. Thanks for your question ans sharing your chart.
It seems the wave 5 of the cycle appears to have extended which often so happen particularly it has now taken on a parabolic nature of advance which is not sustainable for extended period and will complete. The updated chart suggest that now the top could form in the region of 98 -99 and could even strike 100. I will review the price action and republish updated chart for clarity when appropriate. Take note particularly of what I now think is the triangle shown on chart which is limiting triangle. These normally are called as the breakout price out if it limited in it's potential. I will take that into consideration when republis