Here’s why I’m bullish on the Dollar Index


One of the recurring questions we heard at this weekend’s Forex
Traders Expo workshops was “Are you an Elliottician?” To everyone’s surprise our
answer is “No.” But it does help that we’ve been doing Elliott Wave analysis for
over 6 years.

As we see it, an “Elliottician” starts with Elliott Wave and then backs it up
with other indicators. Instead, we work from a fundamental framework first, then
apply standard technical analysis to project our forecasts. Only after we are
(1) sure of a direction from a fundamental and technical basis and (2) confident
that this forecast is proceeding as planned, do we apply an Elliott Wave count.
What that means is that after we have looked at RSI, MACD and Moving Averages on
a series of different time frames — as well as considered the latest “noise” in
the market from the news — do we apply our wave counts.

In fact, as our presentation showed this weekend, the wave counts as we like to
use them, are simply “reference points” along key “inflection points” in the
market. Our projected profit levels are key resistance points and we use Elliott
Wave to show why its likely the market (1) rally to that point and (2) fail to
take that level out. Longtime readers will recall that in December 2004 we
forecasted a bottom in the USDX at 80 followed by a rally to 92 then a pullback
to 85/87 then a rally to 95/100. These were our “inflection points” and we have
used Elliott Wave to navigate the reactions off these levels accordingly.

So what you see here each morning is the “final analysis” from the bottom up. If
the market violates one of our “key inflection points” then we know that we have
to reconsider our wave counts because a whole series of technical indicators
(RSI, MACD, trendlines, MAs) will also have been violated. In a nutshell, our
use of Elliott Wave is to simplify matters for clients down to the most
important factors: (1) direction and (2) key levels against which our forecast
is wrong.

That said, subscribers know that we held our long dollar bias right through the
January selloff and even when we straddled the fence because of the EURUSD move
above 1.21 two weeks ago we also said that looking only at the USDX and USDCHF
we still remained confidently bullish in our near term stance.

Our point is that our wave counts were not violated last week and we therefore
remain confident in our long held view for a forthcoming rally. As we said on
Friday, “The rally from the “wave (2)” low stopped at 90.30 and the pullback is
another “ABC” type correction like we saw in the larger “wave (2)” correction.
Self similar “wave 2” patterns are often reliable in budding “wave (3)” moves so
we can say with confidence that as long as the 88.50 lows hold up we can remain

The dollar index broke back above the 89.50 level today and above downtrend
resistance from the March highs. This is encouraging, but it will take a move
above the “wave i” and “wave b” highs this month to confirm a “wave iii of (3)”
move is indeed underway.

** We think traders can be bullish with risk set just below last week’s “wave
ii” lows at 89.00.

Recommended longs from 88.00. Added on a sustained move above 89.50. Took
profits at 90.60 and repositioned long at 89.50.

is the fund manager at Black Flag Capital Partners and Chairman of
the firm’s Investment Committee, which oversees research, investment and
trading strategies. You can find out more about Jes at
to organizing the hedge fund he was hired by MG Financial Group to help
run their flagship news and analysis department, After four
years as a senior currency strategist he went on to found – a research firm catering to professional traders.