As expected, the US dollar index consolidated on the 200 EMA on the weekly chart. As the bullish signal is complete, we expect the rally to continue.
Moreover, the week's tapering announcement and the NFP data have lifted market sentiment.
The AUD/USD has continued its breakout to the upside, while the USD/CAD gave way to another day of rally for the loony.
That indicates investors are hedging against inflation with commodity currencies. The GBP/USD and EUR/USD formed a reversal pattern at resistance levels. They could resume the downtrend in the coming days.
Technical Outlook
In the charts provided, arrows refer to entries. Dots indicate direction and bar colors, breadth.
Today, our chart trend analysis of the US dollar index is of Elliot Wave Counts, Hurst Cycle, and a correlation study with the 10-Year Treasury Note.
Starting with the monthly chart, we see the USD Index performing a bearish diagonal pattern. As described by Elliot Waves Theory, each of the impulses are in three waves and contains parallel lines.
At the same time, Hurst Cycle indicates the USD will stay up until the end of October, with resistance on Fibonacci levels already tested.
If that wave count is complete, the downtrend will resume, finishing off the fifth wave of the long-term grand supercycle after the initial three waves.
Intraday Outlook
On the daily chart, we see a fifth intermediate wave unfinished. The next resistance is at the 50% Fibonacci retracement, as appropriate for diagonals. This analysis concurs with the Fed's keeping the currency at low levels and an inflationary scenario for the next quarter.
As pointed out before, the divergence between volume and price suggests the upside may not last. Besides, the levels above are areas vigorously defended by sellers.
Correlation
As 10-Year yields hike, the treasury note declines. In this chart, the dollar has lagged the US 10-year bond's uptrend but reacted in synch with down periods.
Conclusion
Our signal is still bullish. There is still room for more upside, and day traders may take advantage. Long-term investors may adjust positions to go long the pairs against the US dollar for the end of the year.