The US Dollar Index (DXY) reached a fresh 5-week high before pulling back in the North American session. Heightened risk-aversion enabled the greenback to test the 50-day moving average for the first time in more than 2 months. Weekly studies have shifted higher and the weekly close has marked a bullish engulfment. A confirmed double bottom hints of further near-term gains, given daily MACD has broken above the midpoint threshold. The next hurdle for dollar bulls is the 38.2% Fibonacci retracement level at 78.650. While there is a high probability of forming another higher low within the next few days, a pullback to the 20-day moving average cannot be ruled out.
The EUR/USD found support at the 50-day moving average, likely completing the first leg of an A-B-C correction. A daily close below the 1.3622 region (Fibonacci retracement) will shift focus onto the 1.34 handle, where the corresponding 50% retracement lies. Meanwhile, the Euro Index (EXY) has given up nearly half of its gains from June’s yearly low.
The USD/JPY recovered from weakness in the overnight session to retest the key 50-day moving average once again. Above this resistance would mark the first back-to-back series of higher lows since late July. If confirmed, the critical 83 handle will be exposed. Meanwhile, another test of the 20-day moving average could materialize next week due to increased risk aversion.
The S&P 500 has finally closed below 14-day moving average support. This confirms the termination of the latest powerful 3rd wave, opening up the possibility of a complex 4th wave correction. The 1175/1180 region is where I anticipate this correction will likely end up. This would be roughly 61.8% the size of the 2nd wave, which is what supported the euro in its 4th wave correction last month.
