As we look across the FX chart, we believe that US dollar is head much higher. We are monitoring “three of three” scenario on dollar index and even “three of three of three “possibility on the S&P500. If we are correct, then stocks are headed much, much deeper, since this wave is usually one of the strongest and sharpest in impulsive sequence.

S&P500 Technical Analysis:

The S&P500 made a tricky pull-back in the past week into the 1195 region, which now appears to be a top of a black wave 2, sub-wave of a red wave 3 of a huge blue wave (3). Notice that prices closed below the 1101 region, so downtrend is definitely expected to continue, which in fact could be very similar to what we saw in start of August.

Critical/invalidation region is now at 1195.5!

This outlook for US stock support the bullish continuation for the US dollar, as these two markets are negatively correlated.

Eur/Usd Technical Analysis:

Euro reversed perfectly in the past week after a corrective wave 2) recovery into 1.37 resistance region. A decline from there is sharp and shows clear personality of an impulsive wave. As such, we suspect that red wave 3) is in progress, which is now testing the lower support line of a base channel. We favor a breakout here, and downtrend acceleration even into 1.28 region in coming days and weeks; into 1.61.8% typical Fibonacci target.

Any near-term recovery should find resistance at former lows, 1.3363 region.

Forex Analysis by Gregor Horvat at ForexPros. com.