US-Dollar Index and Fibonacci-Ratio's

FIB-PRICE-RATIO Tutorial – 5^th Wave Projection – How to Measure Termination!

US$ Dollar Index

The latest decline in the US$ dollar index (DXY) has pulled levels down to next target levels at 92.55+/- which ends its larger minor degree 3rd wave sequence within this year’s impulse downtrend. Momentum shows an oversold condition as last week’s IMM data highlights money managers piling out of dollar holdings – net short positioning is at -$9.7bn, the biggest bear bet since 2012 when the index was trading at 79.27. Surely, a counter-trend 4^th wave rally seems inevitable but from what exact level – beginning from where? This is important to assess because as we all know, getting into a trade, even slightly before it turns, can often test one’s resilience.

Without the use of geometric analysis, Elliott Wave can often be somewhat ‘subjective’ in its assessment of locating a pattern development. But adding this to our repertoire, we discover a way that overturns subjectivity, turning the methodology into a more quantitative, objective process.

What is geometric analysis? It’s a branch of mathematics concerned with questions of shape, size, relative position of figures (patterns) and the properties of space. I’d also like to also add the word ‘dimension’ because in Elliott Wave analysis, dimension is one of the key attributes in identifying any one of R.N. Elliott’s 13 patterns.

The tools to work with are two-fold – first, the Fibonacci ratio sequence and second, using our natural ‘eye’ to identify the dimension of each EW pattern. For the latter, we have to train our ‘eye’ to these patterns – so think pattern, not waves. Waves are the components of the pattern – they are very important, but its more important to train ourselves in pattern identification.

Fibonacci-Price-Ratios

Each of R.N. Elliott’s 13 patterns unfold to common fib-price-ratio measurements which define their dimensions, or shape. There are slight variations but these are confined into maximum limits. In this study of the US$ dollar index, we examine a segment/component within its recent decline and attempt to determine its terminal low.

The DXY began declining into a five wave expanding-impulse pattern from January’s high of 103.82. We already know from using fib-price-ratio analysis that a larger 3^rd wave impulse pattern is approaching downside completion from 102.26. Measuring the minute degree subdivision of this 3^rd wave, 1-2-3-4-5, a 5^th wave low projects to 92.50+/- where minute wave 5 unfolds by a fib. 61.8% correlative ratio of waves 1-3. Can the 92.50+/- level be verified within the substructure of minute wave 5’s final phase of the decline?

Minute wave 5 can be seen subdividing into minuette degree, [i]-[ii]-[iii]-[iv]-[v] – see fig #1. It begins subdividing into a fractal series of 1-2’s, three in total before ‘price-expansion’ unfolds defined as the 3^rd-of-3^rd-of-3^rd wave sequence, between 95.92 and 94.48 as micro-wave [3]. What follows is a compensatory amount of 4-5’s, three in all to the current low at 92.55. But can Fibonacci-Price-Ratios help identify this low?

Fig #1 - US-Dollar Index - 60 mins.

One of the most common fib-price-ratio techniques that can be used in identifying the terminal low of a five wave impulse pattern like this is to extend waves [i]-[iv] by a fib. 61.8% ratio. In this example, it projects wave [v] to a low at 92.64+/-. That’s in close proximity to the 92.50+/- measurement derived from minor degree measurements. When two or three fib-price-ratios meet or converge like this, it heightens the probability of a reversal-signature.

Yesterday’s action (August 2^nd) saw the DXY trade momentarily below these target levels, but it quickly staged ‘rejection’, isolating the low as a single 60 minute bar. This is a great ‘reversal-signature’ because the DXY responded so well to the number – even better if it undergoes an overshoot but speedily responds higher without looking back.

The confidence fib-price-ratios bring to the table are profound when it comes to our decision-making process. Witnessing, experiencing and learning this process has huge benefits for each and everyone’s foray into the journey of trading.

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