The US dollar index ($DXY): I can still make the technical argument the $DXY remains in a major (long-term) 5-wave uptrend, with the ongoing selloff Wave 2 of the pattern. If this is true, then the $DXY needs to hold its previous low of 99.58 (July 2023) after posting a new 4-month low of 100.62 during December. Fundamentally the case for a bullish US dollar has fallen apart as we move into an election year and the Federal Open Market Committee (as well as other global central banks) talking about cutting interest rates. Theoretical Positions: New long positions would’ve been established as the $DXY hit a new 4-month high this past September, roughly 104.70, with positions added as a new 2023 high was set near 105.90. This would create an average long of about 105.30, with a stop below the August low of 101.74. It’s possible longs were stopped out during December. If not, stops would still be below the July 2023 low.
The euro (^EURUSD): Similar to the US dollar index, it could still be argued the euro remains in a major 3-wave downtrend with the ongoing rally looking to be Wave B (second wave). If so, the euro would be expected to hold near its previous high of 1.12754 (July 2023). Theoretical Positions: Traders would’ve been stopped out of previous long positions from 0.98024 (close of September 2022) just below the previous 4-month low of 1.06354 for a gain of 0.0833. New short positions would’ve been established at the same price, with stops above the August high of 1.10645. If not stopped out during December’s move to a high of 1.11395, then buy stops to cover short positions would be above the July peak.
The euro/Canadian dollar (^EURCAD) remains in a major downtrend after completing a bearish 2-month reversal at the end of May. The rally seen during November looks to be Wave B (second wave) of the 3-wave downtrend pattern. Theoretical Positions: Traders might’ve liquidated longs from the August 2022 close of 1.31904 near the May 2023 close of 1.45107 (a gain of 0.13203) and establish new short positions (short euro/long Canadian dollar). Stops would be placed above the Wave B high of 1.50448 (November 2023).
The Canadian dollar (^CADUSD) still looks to be in a major uptrend, though the loonie posted a new 4-month low of 0.7195 during November. I still see the loonie in Wave 2 of its major 5-wave uptrend pattern. Key resistance is the July 2023 high of 0.76378 with the next upside target near 0.77390. Theoretical Positions: Traders could be long from the October 2022 close of 0.73395. Additional longs could be established near the March settlement of 0.73975, putting the average long near 0.73685. Also, additional longs may have been established during June a the loonie took out its previous 4-month high of 0.75398. If so, the average long position would now be 0.74256. If sells stops were triggered below the previous 4-month low of 0.73238 from May, then the average loss would’ve been 0.01018. Otherwise, stops are below the October 2022 low of 0.71550.
The Brazilian real (^BRLUSD) remains in a major sideways-to-up trend. Theoretical Positions: New long positions were established when the real took out its previous 4-month high of 0.20214 from February 2023, with additional longs established as the real took out the May high during June. This puts the average position at roughly 0.20346. It’s possible these positions were stopped out with the move to a new 4-month low during October. If not, stops would now be placed below the October low of 0.19165.
