US Dollar Update

DX is at the VWAP of its Long-Term Megaphone (Red)

DX is at the VWAP of its Long-Term Megaphone (Red)

The dollar is hung up at the VWAP (volume-weighted average price) of a very long-term megaphone that began forming in the late 1980s (red on chart).  It’s also paused just above the breakout point from a falling wedge top connecting the 1985 and 2002 dollar highs.

DX Megaphone (Purple) vs Triangle (Green) Scenario

DX Megaphone (Purple) vs Triangle (Green) Scenario

DX got to its recent high within the red rising megaphone on the second chart.  That high pierced the formation top before reentering and would usually make a new high within the formation before breaking out of it.

Then DX must return to at least the base of the rising megaphone at roughly 93.

It could get there by returning to the blue megaphone VWAP at roughly 95 and starting a new megaphone there (green scenario).  The green scenario could produce a series of new megaphones inside megaphones across 95 to form a big continuation triangle before the dollar continues up to the top of its long-term red megaphone.

But it’s more likely that the dollar will continue through 95 to the bottom of its blue megaphone to form the larger orange megaphone.

DX Update

DX is Working on a H&S Top for its Blue Rising Megaphone Before a Likely Pullback to the Bottom of the Red Megaphone

DX is Working on a H&S Top for its Blue Rising Megaphone Before a Likely Pullback to the Bottom of the Red Megaphone

DX broke through the top of a flat-topped megaphone back in mid-November, and then hung around without really taking off.  That usually means it’s turning the flat-topped megaphone into a conventional megaphone (orange on chart).

DX also needs to retrace to the bottom of its blue rising megaphone.

DX could be completing the top before the dip right now, or it could work its way higher in another leg up for a taller head on a H&S top for the head of a larger H&S for the blue rising megaphone.

Euro futures have confirmed a falling wedge bottom.

Euro Futures Falling Wedge Bottom

Euro Futures Falling Wedge Bottom

US Dollar (DX) Back at Top of Flat-Topped Megaphone

DX is Back at the Top of its Red Flat-Topped Megaphone and is a Favorite to Make Another Trip to its Bottom

DX is Back at the Top of its Red Flat-Topped Megaphone and is a Favorite to Make Another Trip to its Bottom

The DX has returned to the top of its flat-topped megaphone (red).

It has formed a rising megaphone (blue) to get up here.

That means it’s a strong favorite to complete a head and shoulders before a breakout from both the H&S and rising megaphone to return to the bottom of the red megaphone.

From there, the dollar can return to the top of the flat-topped megaphone for a breakout into a big move up, or it can break out through the formation bottom for a return to about 80.

Potential USD H&S with Triangle Right Shoulder

Potential Dollar H&S with Triangle Right Shoulder

Potential Dollar H&S with Triangle Right Shoulder

The dollar may be putting a triangle right shoulder on its potential head and shoulders.

A right shoulder triangle, if it actually completes, would be a huge favorite to break out downwards.

Target would be VWAP of the Red Megaphone

Target would be VWAP of the Red Megaphone

The dollar formed a megaphone back in 2013 and the recent melt-up was a trip to the megaphone top.  The minimum retrace from up here would be to the megaphone VWAP at roughly 83.

In theory, the dollar could go all the way to the megaphone bottom, but with the megaphone this big the dollar is more likely to reverse at VWAP for a breakout upwards or start a new megaphone across VWAP.

DX Likely Fake Head and Shoulders

DX is Putting a Megaphone Right Shoulder on Its Little H&S - A Megaphone Right Shoulder Usually Means a Higher High

DX is Putting a Megaphone Right Shoulder on Its Little H&S – A Megaphone Right Shoulder Usually Means a Higher High

The Dollar Index has drawn a head and shoulders on its 30-minute chart. But the right shoulder has formed a megaphone, complete with a fake breakout through the neckline.

A megaphone right shoulder would usually lead to a higher high that would be the real head of a larger H&S.

DX Price Channel

DX Price Channel is in Critical Decision Wave

DX Price Channel is in Critical Decision Wave

The Dollar Index formed a price channel (orange on chart) over the weekend and today, and is now in the critical decision wave within the price channel.

This is where the DX either breaks out upwards from the channel to accelerate the move up or forms a top or sideways consolidation for the channeled move.  A consolidation could break out in either direction.

DX Price Channel at Critical Decision Point

DX Price Channel (Red) is in Critical Decision Wave

DX Price Channel (Red) is in Critical Decision Wave

DX has a confirmed price channel on its daily chart (red) that is in its critical decision wave.

This is the wave in any downward price channel where the price either pierces the channel bottom, then makes a partial retrace into the channel before breaking out into a melt-down channel, or the price starts a bottom.

Because DX bounced off the channel bottom today without piercing it, it has probably started a bottom. If the DX has started a bottom, it should pierce the channel top on this next wave up.

Euro futures have not broken critical lines, so that supports the idea that DX has started some kind of retrace that will likely form the right shoulder on a head and shoulders top.

Dollar at Rising Megaphone Bottom Putting in H&S Right Shoulder

Dollar Rising Megaphone (Orange)

Dollar Rising Megaphone (Orange)

There’s more than one way of looking at how the dollar’s been topping, including a rising wedge top that seemed particularly well-matched to a falling wedge bottom on the euro.

But the one that seems to make the most sense in terms of the dollar’s recent price reactions is the orange rising megaphone on the chart above, which is also making me rethink the euro and maybe oil.

The dollar broke out the top of the formation, which is the classic way to complete a rising megaphone.  Then, since the first breakout through the top, it’s formed a head and shoulders, with the head completing an ugly but legal triangle top.

Now the dollar is back at the bottom of the orange rising megaphone, where you would usually see a bounce, putting in a right shoulder on the H&S.

The downward breakout from the H&S and rising megaphone would target somewhere between the 2013 highs and the level of the lowest touch on the rising megaphone bottom.