On the hypothetical, technical book example chart below, the blue line of a correction point, or the first part of a larger impulse count of a bear market, is shown. In this case the market makes a technical pull-back after the first five waves, usually for around 61.8% of wave 1/A distance, before the trend may continue; in our case lower.

Once the market reaches this 61.8% Fibonacci retracement area, the set-up to catch the trend in an expected wave 3/C is shown, and is technically perfect, considering the small risk (above the high in bear market) and huge reward that comes in somewhere below wave 1/A bottom; at the same distance of wave 1/A measured from 2/B top.   

Technical example and wave pattern

The live S&P 4 hour chart below is showing the same pattern discussed above. The market made five waves down from 1098 top to 1025 area, where wave 1)/A) was completed. After that, market made an expected three wave pull-back, labeled as red A, B,C, of a blue wave 2)/B), called a correction.

S&P futures 4 Hour  view

The significant resistance zone of this correction comes in at the1065-1070 area; around the 61.8% retracement point that is mentioned above, in thehypotheyical link. 

The wave count is shown as a clear set-up for an expected move lower, into a powerful wave 3)/C) leg, which will be confirmed if the wave B low, and 1025 resistance are taken out.

If this wave count is correct than we believe that dollar should benefit against the majors over the coming week as risk aversion would then have hit the market, and as stocks are sold (lower S&P), bonds are bought, and the dollar tends to move higher.

The critical resistance zone of the wave count is shown at the 1098.50 area, where the breakout would invalidated the current wave count, as wave 2) must not make a retrace for more than 100% of wave 1) distance.

In Friday trade, Eur/Usd is still trapped between 1.4920 resistance, and the 1.4810 support area.  Technically the euro is trading on a top of a recent bull market channel, sitting around the significant 61.8% Fibonacci resistance area, where a five wave move up in wave C), from the 1.4625 low may be finished.

In this case a larger wave II flat pattern should also be completed, which singles for a near-term technical bear market in the single currency.

The driver of the pair, at this time of a global business cycle move from trough to growth, is the S&P futures market. If stocks falter, for whatever reason, and 1050 on the S&P fails to offer support, the euro will easily follow along.

At that time, the 1.4810 support zone needs to be taken out for a near term bear market confirmation in the currency that dominates the weighting of the dollar index.  The move away from S&P/Eur correlation will come when growth numbers turn to expansion and the quantative easing faucet is turned off by the developed market's central bankers.

At that time the interest rate differential will come into play, as the race to increase rates to combat inflation will be on. The dollar may then take back the whip from those currencies that have dominated it recently, as the dollar liquidity is removed from the commercial market system.

Dollar valuations will rely less on forward debt at that time, and far more on what other regions are raising at a slower rate than the Fed.