Sunday, July 13, 2014
Elliott wave anlaysis of the USD-Index - Expect a strong rally soon.
After a nice 61.8% correction of red wave i to 79.75, we have following seen a break above the resistance-line from the 81.02 high and at the same time a small invers S/H/S formation has been triggered, this tells me that red wave ii is over and red wave iii is developing.
Third waves is normally the strongest of the impulsive waves and therefore I would always expect extension to happen during the third wave. Extensions can also be seen in the first and the fifth wave, Just look a little to the left, and you will see that during red wave i it was the first of the sub-waves (blue wave i) that extended. The minimum extension I would look for is the 161.8% extension of wave one. It can be discussed whether this represents a real extension, but this is the most common extension you would see. If this target is broken clearly the next real extension target is the 261.8%, but you should always calculate the 200% extension target too.
If we calculate the 161.8% extension target of red wave i that would give us a target of 83.17, but as you can see red wave iii is already being sub-divided into smaller waves and we already have blue wave i and ii in place, which means, we can calculate the extension targets for blue wave iii and the first extension target is at 80.97, where blue wave iii will be 161.8% of blue wave i. As I said above, blue wave iii could easily extend further, but there is no way to tell how far it will extend, so all we can do, is keep a close eye of the structure of this rally.
As said before, not only has the resistance-line been broken, but a small invers S/H/S bottom-formation was trigger yesterday, which also is a very strong indication of a change of the smaller degree of trend from down to up. That said, an even bigger invers S/H/S bottom could be developing and a break above the neckline near 80.30 will activate this formation for an even bigger rally.
This is as bullish a configuration that you can get and expect a strong rally higher soon.
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