Dollar still has room higher into early 2027

Friday's jobs report was a strong one. US payrolls rose by 165,000 in October, well above expectations, and unemployment slipped to 4.1%. Markets quickly leaned back toward another Fed hike in December, yields moved up, and the dollar index jumped above 102.

For us, that reaction fits the bigger picture we've been tracking on DXY for months.

Look at the daily chart. Since the January low, the dollar has been recovering in overlapping, choppy legs. That is not how an impulse looks. Overlap tells us we're dealing with a correction, and corrections come in three or seven swings.

The first part, from the January low to the July high, was a clean A-B-C, wave (W). The pullback into September was wave (X), the link between two corrections. Now the dollar is working on wave (Y), another A-B-C. Count them up and that's five swings done, with the sixth and seventh still missing. That is a complex correction, and it points to one more push higher, with room toward the 105 area.

On the intraday chart, last week's dip looked like a wave 4 pullback into the 101 support zone. Friday's NFP reaction from that area is the kind of recovery we wanted to see. As long as the dollar stays above 99.86, we'd treat dips as part of the recovery.

We also keep an eye on timing. Major reversals on our charts have clustered around January — in 2024, 2025, and again with this year's low in January 2026. The seventh swing could complete into a similar window in early 2027. It doesn't have to be an exact date, but it's a window we'll watch closely.

There's one more reason January stands out this time. Democrats won both the House and the Senate in Tuesday's midterms, and the new Congress takes its seats on January 3, 2027. A shift in power in Washington like that can easily become the catalyst the market needs for a turn, so the timing lines up nicely with our count.

A firmer dollar doesn't have to mean lower stocks, either. Indexes have held up well so far despite everything.

Trade well,
GH