The rally from July 1 low at 79.75 has unfolded perfectly and is currently sitting just below the 82.21 target. At 82.21 red wave iii will be 361.8% the length of red wave i. But how do we know, that the 82.21 target likely will hold for a correction in red wave iv?
Well we don't for sure, that 82.21 will hold and turn the USD-Index lower in red wave iv, but beside the 361.8% extension target, we also saw a nice triangle formation as sub-wave iv of red wave iii and triangles tell us two things. First a triangle tells us, that once the formation is over, the underlying trend will be resumed (in this case higher, which clearly is what we have seen). Second a triangle formation tells us, that the next move in direction of the underlying trend will be the last of that sequence, before a correction takes over. So the rally to 82.21 should be followed by a correction.
Then what can be expected of this red wave iv correction? The first thing we will look for is a correction back to the bottom of wave four of one lessor (in this case blue wave iv, which comes in at 81.26). Then we apply the Fibonacci ratios to the rally from 79.75 to 82.21 and the 38.2% corrective target comes in at exactly 81.26, so now we already have to identical for red wave iv, when we have a cluster of target like this, we should always expect this target not only to work like a magnet, but also provide the necessary support to kick of red wave v higher.
For now we should keep our focus on the 82.21 target, but remember we are close to a short term top for red wave iii and a correction should soon follower in red wave iv.
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