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Chart Of The Day Update:
U.S. $ index: Ending diagonal pattern
The U.S. dollar has reached new lows recently against the majors, driven by a higher stock and commodity market, especially oil which has touched the 80.00 area over the past few sessions.
EUR/USD is currently trading very close to the 1.5000 area, from where traders may see some reversal movements, since this is a psychological as well as technical level. Meanwhile the U.S. Dollar Index, basket of foreign currencies, is threatening the 74-75 support area with an Elliott Wave ending diagonal pattern.
Ending diagonal patterns, shown below, can occur in the fifth wave position at times when the preceding move has moved too far, too fast, or in a wave C position of an A-B-C formation.
An ending diagonal has a wedge shape with two lines connected on the one side of waves i and waves iii, and on the other side connected to waves ii and iv.
With this being said, on our live U.S. Dollar Index daily chart, traders can see this ending diagonal in a wave five position, which signals a coming turning point, and that means a technical U.S. dollar bottom signal is here. All we now need is a fundamental instigator to get things moving.
TheLFB Charting: Dollar Index Elliott Wave view
Prices on the Dollar index daily chart have reached new lows recently, which means that the final push of an ending diagonal is in progress.
The market looks to be targeting the 75.00 support region, where an ending diagonal of a red wave V may be completed.
Traders should be looking for a long-term turning point over the coming weeks, especially once the upper line of diagonal and wave IV top are taken out.
Traders however, still need to be very patient and look for the sub-waves of the diagonal on the smaller time frames to determine the possible turning point or bottom more precisely.
The chart below shows the structure of an ending diagonal is 3-3-3-3-3, which means that three waves in each wave (i, ii, iii, iv, v) of the diagonal must be shown, before the pattern will be completed. The three wave structures are labelled as waves a, b and c.
On the live Dollar Index 4 Hour chart the last part of an ending diagonal (red square on the picture above) is shown, where the black wave c is searching out the bottom.
TheLFB Charting: Dollar Index Elliott Wave view
On this Dollar Index live four hour chart, the prices have broken through the red wave iii) lows at the 75.21 area as expected, which put the current sub-wave v) of black wave c in play.
The wave c target is still shown around the 74.70-75.00 area where an ending diagonal may be completed, as market will then be structured by a three waves in wave five as it should be. Once this gets done, traders may look for a turning point, but patiently, as the wave iv) highs at the 75.90 area must be taken out for a bull trend reversal confirmation.
Any break of the upper resistance line of an ending diagonal will signal that the bottom is in, which should be another technical reason for a lower EUR/USD move, but that is another story, and one that we will run through in the daily series of educational charting that will highlight the currency and commodity moves.