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Late Drop In US Dollar Investor Cycle

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The Dollar collapsed on Friday, confirming that we are indeed still in the Investor Cycle that began 19 weeks ago with the surge out of the May lows. The decline was severe, the type of drop late in an Investor Cycle that tells me we have entered into the final capitulation ICL move.

The news is welcomed though, as it provides much more clarity and greatly increases the probability that the coming Dollar DCL will also mark the ICL. This is because the Investor Cycle has now seen 2 consecutive failed Daily Cycle and is entering Week 20, comfortably into the timing band for a low. We also are seeing a complete breakdown of the Cycle, a common trait found in the last Daily Cycle of any IC.

The Investor Cycle has broken below the rising 3 Year Trend line, itself a signal that this IC is capitulating into a Cycle Low. This Cycle still remains a positive Right Translated Cycle, so the bullish long term case still hold weight here. But as we're 8 Weeks from the top and now deeper into oversold territory, we should be prepared to see a fairly sudden and sharp rally emerge in the coming 1-2 weeks.

The sentiment chart posted below was taken from Tuesday, so it's now a week old and does not cover the negative action of this week. By the time the next survey is printed, I would expect to see sentiment near 30 and below the lower band. Such levels of ceded sentiment are always found near major lows, I don't expect this event to be any different.

But here is where it gets interesting, with implications for our 3 Year Cycle outlook too. The Euro has broken out of its long 3 Year Cycle decline (the mirror image of the Dollar break shown in the Weekly Chart) and is showing signs of life. I'm very far from ready to call a 3 Year Cycle Low having past for the Euro, but this breakout could be signaling that the next drop into an ICL might not be anywhere near as deep as I expect. We could potentially be looking at a test of the July lows in the $1.19 area, a double bottom, before the Euro embarks on a series of Right Translated Cycles. Of course what I'm implying is that the Dollar would rally while the Euro is finding its low, but instead of a Dollar super spike, we could be looking at a double top for the Dollar in the 84-85 area. This Dollar top would be the mirror of the Euro 3 Year Cycle Low.

Personally it's hard to image the Euro coming back like this, considering the structural problems and deep recessions. But then again Europe is well ahead of the US with regards to the "inflicted pain" of the secular bear market. Many of their equity markets have been annihilated and the Euro has come down from a high near $1.50. Many of the economies are into their 3rd quarter of contraction, so it's not surprising to expect the Europeans to find a major low and to emerge out quicker than the US.

But then trying to pick the direction of the Dollar Index is an exercise in studying the $USD/Euro currency pair. Probably a futile practice in the end as they're both currencies being rapidly debased. Hard assets are making new highs in both currencies, so it's time we start placing less weight to their movements when looking at longer term asset correlations.

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