The USD Index has recovered very sharply from below the 79.00 level. Recovery was impulsive so we need to respect this type of price action, that's why we turned bullish on the USD for a few days. Always when markets will make just a corrective pull-back you need to remember that structure still needs to be made in three waves.

If we look on our chart then we can clearly see that the rise from the low is actually only in one completed leg; that's wave (a), so be aware of more upside in this week. Ideally market is forming an (a)-(b)-(c) retracement, called a zig-zag towards 80.15-80.50 region. At that zone you will also notice a trend-line connected from November 16 which could react as a resistance if tested of-course.

For the very near-term we could see deeper levels in wave (b) with possible test of 79.40 region before wave (c) breaks higher. With higher near-term prediction for the USD be aware of more weakness on EUR/USD.

Forex Analysis by Gregor Horvat at ForexPros. com