Impulse Moves In The Euro And US Dollar

For the last several months or so I’ve been showing you that many of the important currencies that make up the US dollar have been breaking down from large 2 1/2 year trading ranges. If you want to know what the US dollar is going to do the first thing you need to do is look at the important currencies that make up the US dollar as the US dollar is just a derivative of those currencies. Most of the time a stock, or in this case the currencies that make up the US dollar are trading within a reversal pattern, consolidation pattern, or are in an impulse move. It’s that impulse move that you want to be aware of and the earlier the better.

The $XEU euro, is the biggest component of the US dollar and actually topped out in 2008  building out a massive 12 year H&S top. Last week the euro broke below the neckline of its H&S top which was the backtest to that massive 12 year neckline.

Since the XEU makes up the biggest part of the US dollar we can see a small H&S top on this weekly chart made over the last year. If the XEU is building out a H&S top, then the US dollar will have been building out a H&S bottom of that same timeframe.

Below is a longer term daily chart for the US dollar which shows how the price action has been reversing back up after the 2017 decline.

Below is a 35 year monthly chart for the USD which shows its 2011 uptrend channel with the blue expanding triangle and the red bear trap, red circle. If you look to the thumbnail on the sidebar you can see the H&S bottom a little more clearly with the bullish rising wedge being the right shoulder.

Will we ever see the 165 area again on the US dollar in our lifetime which would be the price objective of the 30 year falling wedge?

Below is a weekly combo chart which has the US dollar on top and gold on the bottom. From a short term perspective the inverse correlation can be a little ragged but on this longer term chart the big picture shows the inverse correlation to be pretty good over time.

This next chart is a 2 year static chart which shows the 2014 to the 2015 impulse leg up for the US dollar had that we followed in real time back then. As you can see the first two small consolidation patterns were the two red rising wedges. Beginning in October of 2014 the US dollar began to buildout a much bigger black bullish rising wedge which was built with two smaller consideration patterns, the blue bull flag and rectangle. Note the breakout gap above the top rail of the black rising wedge and the clean backtest which confirmed for me the black rising wedge was indeed the correct pattern. After the breakout from the black bullish rising wedge the US dollar had one more consolidation pattern to build out which was the red triangle before that major impulse move finally ran its course.

With the breakout of the bullish rising wedge last Friday there is a chance that we could see an impulse move similar to the 2014 – 2015 leg as shown on the chart above. If we get something similar the combo chart below shows how many of the different asset classes performed during that time. Only the TLT kept pace with the US dollar as it made a series of higher highs and higher lows. The SPX followed the US dollar higher initially but then had a small correction, black arrow, before rallying again with the US dollar. GLD and GDX bottomed initially in November of 2014, experienced a decent counter trend rally while the US dollar was still building out the black bullish rising wedge. They both declined once more as the US dollar was approaching its 2015 high but managed to close just above their 2014 low, red arrows. The WTIC declined pretty strongly during the US dollar’s impulse move up but also created a double bottom between its two lows. The $XEU looked like it was the weakest area to be in during the US dollar’s rally leg, while the Japanese yen fared slightly better by not making a new low.

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