Elliott Wave Update: Stocks in Wave 4 Consolidation, Dollar Reversal Ahead

Hello Traders! It's been a few weeks since our latest Elliott wave blog post.

Stocks haven't made much progress since early December, and the S&P 500 is still consolidating. This was initially due to portfolio adjustments and profit-taking at the end of 2024. Now, we're seeing limited upside as the Fed has decided to stay on hold with rates, and new risks related to tariffs and trade wars have emerged. From an Elliott wave perspective, this appears like a correction within uptrend.

With uncertainty—something common during Trump's presidency—markets tend to stay in consolidation. However, such consolidations are eventually broken, and given the strong recovery in the S&P 500 since October 2022, I see no reason to fight this trend. From an Elliott wave perspective, this consolidation appears to be a wave 4, meaning a new push to the upside could in weeks ahead. Even if we see more weakness the support can be seen near 5685 region. Overall, the bullish scenario for a break into a  fifth wave would be more likely if US yields remain sideways or move lower with USD over the next few weeks.

Looking at the Dollar Index, wave C of the three-wave rally from the 2023 low seems to be in its final stages. I expect a major reversal, and I would be more confident about this if the price breaks below the key swing supports at 107 and 106.50.

If the US dollar comes under pressure and Treasuries continue to rise, what should traders focus on? I believe the Japanese Yen could be an interesting option, especially with the BoJ potentially considering further rate hikes this year. The price action also looks promising for bears, with a strong turn down from the January highs, followed by current sideways movement, which appears to be a correction within a downtrend.

I expect further weakness in USDJPY, potentially targeting the 152.50 area, which aligns with the 61.8% retracement. If the pair moves higher first, watch for resistance at 156 followed by 156.70.

Grega Horvat

Forex Analytix