The Big Picture on the Dollar
October 29th, 2009WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
Some dollar bears are asking for an update on what I think is happening on the dollar. The answer depends on the time horizon that individual market participants are interested in.
I’m going to break it down three ways: short term (days to weeks), medium term (months to a couple of years), and long term (several years).
For dollar bears, the current rally shouldn’t cause too much concern—yet. As you can see, on the daily chart, the well defined downtrending channel is still fully intact.
U.S. Dollar Index, Daily Chart
The medium term picture on the dollar should concern dollar bears with shorter time horizons. Technically, the dollar started an uptrend in early 2008 that remains intact. Additionally, there is a lot of support below the current action on the dollar. I have indicated several of those supports with green lines.
U.S. Dollar Index, Weekly Chart
Now, let’s turn to the long term picture. The chart below shows the U.S. Dollar Index as monthly candles. A chart like this is only useful for looking at multiyear trends and patterns. What do we see here?
U.S. Dollar Index, Monthly Chart
The monthly U.S. Dollar Index chart clearly shows a bearish Elliott Wave cycle on the dollar that is partially into the 5th and final dominant trend wave. Elliot Wave cycles are described by five dominant trend waves (one through five), followed by three corrective trend waves (A, B, C).
According to [my interpretation] of Elliott Wave theory, the dollar is probably headed to new historic lows over the next few years.
In reference to this: “According to Elliot Wave theory, the dollar is probably headed to new historic lows over the next few years.”
I’m pretty new at this but I thought he said the dollar was going up and would go up for a year or so once it started. Wave 5 being the last wave then the reversal.
INTERVIEW-Elliott Wave’s Prechter says dollar is bottoming
http://www.forbes.com/feeds/reuters/2009/10/09/2009-10-09T161009Z_01_N0965534_RTRIDST_0_PRECHTER-DOLLAR-STOCKS-INTERVIEW-URGENT.html
Sorry if I got it wrong, my dyslexia shining through.
Ok the technical stuff was there obviously to cause a $ bid, but maybe the biggest driver was op-ex for our friend gold? Had to drive the price down to where the Goldman could get the best price on their options and also avaoid more physical deliveries.
Seems to me that there are overwhelming fundamentals working against the buck right now. Actually there are overwhelming fundamentals against all bonds and economies I guess. Long live gold!
“Over the last three months, banks put 63 percent of their new cash into euros and yen — not the greenbacks — a nearly complete reversal of the dollar’s onetime dominance for reserves, according to Barclays Capital. The dollar’s share of new cash in the central banks was down to 37 percent — compared with two-thirds a decade ago.
“Currently, dollars account for about 62 percent of the currency reserve at central banks — the lowest on record, said the International Monetary Fund.
“Bernanke could go down in economic history as the man who killed the greenback on the operating table.”
http://www.nypost.com/p/news/business/dollar_loses_reserve_status_to_yen_hFyfwvpBW1YYLykSJwTTEL
The value of the dollar has a lot to do with supply and demand. When banks demand fewer dollars in their reserves, the value of dollar goes down. Banks are getting rid of dollars and buying more yen and euros. That is why the value of the dollar is going down.
@ shoe2one
Like anything in technical analysis, it’s likely to be subjective. My interpretation of the thing, long term, shows a bearish pattern intact. But that’s just my interpretation, guess, opinion, whatever you want to call it. Notice how I always refer to this stuff as the Magic 8 Ball and chicken entrails? That’s because this stuff is not physics or chemistry. One view is just as likely to be right as another.
For whatever it’s worth, here’s another, much longer view of the situation (and it’s not bullish):
http://www.bloomberg.com/apps/news?pid=20601109&sid=a_A5nqmw9Dq8
Backup: https://cryptogon.com/?p=11686
The dollar may drop to 50 yen next year and eventually lose its role as the global reserve currency, Sumitomo Mitsui Banking Corp.’s chief strategist said, citing trading patterns and a likely double dip in the U.S. economy.
“The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger,” said Daisuke Uno at Sumitomo Mitsui, a unit of Japan’s third- biggest bank. “The dollar’s fall won’t stop until there’s a change to the global currency system.”
The dollar last week dropped to the lowest in almost a year against the yen as record U.S. government borrowings and interest rates near zero sapped demand for the U.S. currency. The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, has fallen 15 percent from its peak this year to as low as 75.211 today, the lowest since August 2008.
The gauge is about five points away from its record low in March 2008, and the dollar is 2.5 percent away from a 14-year low against the yen.
“We can no longer stop the big wave of dollar weakness,” said Uno, who correctly predicted the dollar would fall under 100 yen and the Dow Jones Industrial Average would sink below 7,000 after the bankruptcy of Lehman Brothers Holdings Inc. last year. If the U.S. currency breaks through record levels, “there will be no downside limit, and even coordinated intervention won’t work,” he said.
China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency. Hossein Ghazavi, Iran’s deputy central bank chief, said on Sept. 13 the euro has overtaken the dollar as the main currency of Iran’s foreign reserves.
Elliott Wave
The greenback is heading for the trough of a super-cycle that started in August 1971, Uno said, referring to the Elliot Wave theory, which holds that market swings follow a predictable five-stage pattern of three steps forward, two steps back.
The dollar is now at wave five of the 40-year cycle, Uno said. It dropped to 92 yen during wave one that ended in March 1973. The dollar will target 50 yen during the current wave, based on multiplying 92 with 0.764, a number in the Fibonacci sequence, and subtracting from the 123.17 yen level seen in the second quarter of 2007, according to Uno.
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Finally, I’d like to reiterate: I’m currently accumulating US$ to balance out my holdings.
Remember this recent post where I sold out of DBA:
In the present post, I wrote:
Look at the chart that goes along with those words, and all the supports and the trend line! Let’s not get confused between the short, medium and long term perspectives. I’m a much more tactical trader than most people reading this. Would I stay short through a serious rally from these levels, even though MY GUESS is that the bigger picture, over years, is bearish?
No way.
For me, the strategic picture is bearish on the dollar. But that doesn’t mean I’ll let myself get whacked on the way there through a pants shitting rally.
See the daily chart above. Unless dollar bears have an outlook of several years, if the dollar moves up and out of that channel: Watch out. Watch out. Watch out.
Is it August 2008 all over again?
https://cryptogon.com/?p=3524
It’s a very similar setup.
Hi Kevin,
Thanks for the info. I’m somewhat new at technical analysis and elliott wave. I know many people don’t find Robert Pretcher’s deflation ideas very popular but many of them seem to make sense to me. Especially the idea about the amount of wealth destruction that has and will take place. What I think in the short term is the dollar will make a comeback. But I really have no idea. Thanks again for your time and effort, its appreciated.