Coming Week for the Dollar: Strength

A drop in Weekly Jobless Claims on Thursday and higher productivity helped the major U.S. indexes climb higher in Thursday trade, when the Dow Jones ended 2.08% higher, the S&P 500 was1.92% higher, while the Nasdaq finished the trade 2.42% in the green. As expected, stocks in Asian session also traded higher, with a +1.63% close on the Hang Seng Index, and +0.74% on Nikkei.

From an Elliott Wave perspective, the resistance could be between the 1065-1070 region, which looks to be a very important point for the S&P. Below is the ground rule for the set-up we see.

On the chart above, the blue line of a correction point, or the first part of a larger impulse count of a bear market, is shown. In this case, the market makes a technical pullback after the first five waves, usually for around 61.8% of wave 1/A distance, before the trend may continue; in our case, lower.

Once the market reaches this 61.8% Fibonacci retracement area, the set-up to catch the trend in an expected wave 3/C is shown, and is technically perfect, considering the small risk (above the high in bear market) and huge reward that comes in somewhere below wave 1/A bottom; at the same distance of wave 1/A measured from 2/B top.

The live S&P 4-hour chart above is showing the same pattern discussed above. The market made five waves down from 1098 top to 1025 area, where wave 1)/A) was completed. After that, the market made an expected three-wave pullback, labeled as red A, B,C, of a blue wave 2)/B), called a correction.

The significant resistance zone of this correction comes in at the1065-1070 area; around the 61.8% retracement area that is mentioned above, at the basic EW pattern.

The wave count is shown as a clear set-up for an expected move lower, into a powerful wave 3)/C) leg, which will be confirmed if the wave B low, and 1025 resistance are taken out.

If this wave count is correct, than we believe the dollar should benefit against the majors over the coming week, as risk aversion would then have hit the market, and as stocks are sold (lower S&P), bonds are bought and the dollar tends to move higher. The critical resistance zone of the wave count is shown at the 1098.50 area, where the breakout would invalidated the current wave count, as wave 2) must not make a retrace for more than 100% of wave 1) distance.

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