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Pound Opportunity On Dollar Index Break

The global market advanced at the start of the new week after the G-20 meeting from Scotland wrapped up, and countries agreed to maintain the economic stimulus plans.

The Asian and European markets closed higher after the first session of the week, and the U.S. dollar was pushed lower, down to the 75.00 support region, where the recent moves found support.

As expected, the similar equity trade pattern was seen in the U.S. session where the S&P 500 gained more than 20 points from Friday’s close, while the Dow Jones and NASDAQ finished the trade around 2% higher.

The commodity markets are higher today, with oil positive by 2.5%, but still below the yearly highs, and gold which hit a top around 1110 before it fell to near-term 1100 support zone.

Higher equity and commodity markets are the reason for U.S. dollar index prices around 75.00, and at yearly lows.

 TheLFB Charting: Dollar Index Weekly view

On the weekly dollar index chart above we can see a tests of the current 75.00 support zone, where a breakout will put the 74.00 target area in play. The 74.00 area may become quite interesting considering to the price action from November of 2007 and June of 2008, when we saw some reversal moves once the level was hit.

One of the currencies that should gain against the U.S. dollar, if the index breaks through the 75.00 support area, is the British pound, which from an Elliott Wave view could be on the way to new highs with a red wave V in process, as shown on the daily chart below.

 TheLFB Charting: Gbp/Usd Daily Elliott Wave view

The first up-side target of a current impulse count, on a weak dollar index, will be at the 1.7041 area, where a break of wave C/III highs will put the Fibonacci projection levels around 1.7500 in play. In this zone traders may look for a completed wave V.