Here is an excerpt from the mid week premium update by The Financial Tap focusing on the US Dollar.
$US DOLLAR - Cycle Counts
The Dollar is really suffering from a lack of confidence now, not surprising after the FED literally just announced continuous QE for at least the next 2 years. This news came off the heels of a fairly significant decline, only compounding the negative sentiment towards the Dollar. I'm no longer sure if the Dollar can mount any meaningful or sustained rally from this point, not with the enormous level of QE that the FED announced. By sustained I'm referring to a new Investor Cycle that goes on to make fresh new 3 Year Cycle highs.
But even negative or poor fundamentals for an asset never equate to a continuous bloodbath sell-off. At some point a Cycle needs to reset and a counter trend rally must ensure to provide the foundation for the next trending decline. The bruising decline the Dollar suffered this past Friday really did have all the characteristics of both a Daily and Investor Cycle decline. From a Cycle timing, depressed sentiment, and technical standpoint, all the expected conditions for a Cycle Low were comfortably (and more) met.
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So if a Daily Cycle Low has been made, the first requirement here would be to see a Cycle Swing Low, an event that would have price move above the high of last Friday. With yesterday's announcement by the Japanese Central Bank of additional QE, the Dollar spiked above last week's high and temporarily confirmed a Swing Low. But a true trading Swing Low ideally should close above this level to trigger, and in this case it did not. The Dollar's inability to form a Swing with Japan's Central bank essentially confirming a new phase of central bank liquidity wars is somewhat disappointing. The mid-day reversal was very far from inspiring and I'm wondering if this is an indication of yet another deep but short term low still to come. It's either that, or a new Investor Cycle is just struggling to find its footing after what was a very one-sided beating.
As is most often the case, time will tell whether we have yet another failed Daily Cycle to come for the Dollar or if this is just a matter of more time needed for the Dollar to lift out of these deep lows. A comfortable close above the Swing Low point of 78.32 should in the very least confirm a new Daily Cycle.
As for the usefulness of the Dollar Index, it's now very debatable. What is likely now a new era of central bank currency wars, I question the usefulness of the Index altogether. Since the start (2003) of the FED's drastic reduction in rates out of the bear market and the subsequent QE programs, the FED balance sheet has exploded and Federal debt levels have more than doubled. A similar profile can be found around the world with other nations and yet the Dollar Index is flat during this time! The obvious take away is what I have reinforced for so long, that this is a global fiat debasement of all currencies and therefore the Index has lost is predictive value. This is a mutli-decade Cycle debt collapse and its a world-wide problem, not a U.S problem.
When we price hard assets like Gold and Oil in Dollars though, the true extent of the debasement is revealed. I believe we're now entering that period of Dollar decoupling from hard assets and we need to adjust how we develop our investment and Cycles framework to reflect this new reality. Of course short term rallies by the Dollar will always impact hard assets, but the general Investor and Secular Cycle movements will be less and less dependent upon the movements of the Dollar.