Elliott Wave: Is The Dollar's Bear Run Nearing Exhaustion? Watch These Signs For Stabilization

The dollar index has recently seen a sharp decline, losing more than 10% from the January 2025 highs, which is a significant move in a relatively short period. Looking at the current price action, it's important to consider sentiment; when it reaches an extreme, a shift is often near. The chart below shows the current drop is coming from the same black resistance line that triggered a reversal at the end of 2024. Back then, sentiment was heavily bearish—especially on EURUSD—and a reversal followed. It now appears sentiment may again be reaching a similar extreme.

In fact, if we look at the same structure from the January highs, we can clearly count five waves down on the daily timeframe from above 110. According to Elliott Wave theory, when you see a five-wave decline ending at fresh lows, especially with wave five in progress or near completion, this often suggests that the current bearish cycle is in its late stages. This doesn't mean a new bull run is starting—it just means that a slowdown or consolidation phase could follow.

Also, seasoned traders know that summer months are often marked by slower price action and choppy consolidation, and that could be especially true now given how extended this decline has been. Key support levels to watch are around 90, 95, and 96—zones that match the leg down from 2022 highs and could act as strong psychological levels.

There are still a lot of uncertainties on the table: tariff disputes, unconfirmed trade deals, and growing geopolitical risks in the Middle East. These factors may encourage investors to start reducing risk, especially as the stock market has rallied quite strongly since the April lows. Any pullback in equities could support a temporary stabilization in the dollar. Sp500 has a nice support at 5800.

Even if you're not trading the Dollar Index directly, you'll likely be watching EURUSD. What stands out there is the divergence between the German–US yield spread and EURUSD—the spread is falling while EURUSD remains elevated. This broken correlation could signal that the euro is running into resistance and that we should be on alert for a possible USD stabilization.