The Long-term Chart Of The US Dollar
Since the middle of 2014, the US Dollar has been on a tear! The strong dollar has managed to depress commodity prices across the board, from grains to energy, to our beloved precious metals. But a look at the very long term chart of the US Dollar gives a totally different perspective. Instead of being in a raging bull market, the US Dollar is merely in a short term corrective rally phase, while locked into a long term bear market. Just take a look at the following chart, supplied by Jesse:
The all-time high shown on the US Dollar occurred in September 1985 at 164.72. Then came a sharp decline first to 85.42 and eventually down to a low of 78.43. If you calculated a 50% correction back to the upside, you would project a target in the US Dollar at 121.57. Well, we pretty well hit that 50% target when we triple topped in the 2000 to 2001 time frame, stopping at 121.29. Then came another hard selloff that stopped first at 80.39 and eventually hit a low of 71.32. Figuring a 50% correction of this second selloff, one would project a price of 96.30. Well, although the above chart is not up to date, stopping at 90.29, with Friday's surge to 97.60 in March US Dollar futures, we have now completed a similar 50% correction of the second large multi-year US Dollar selloff. That means we are vulnerable for a negative reversal at any moment.
Notice also that back in the late 1980s and early 90s, there were tops in the US Dollar of 97.72, 98.12 and 105.10. Then in the late 1990s, the rally stuggled in the 102 to 103 area. Although the US Dollar has been strong up till now, it will become more and more difficult to continue making new highs against such formidable resistance.
Another calculation that I have made when looking at the US Dollar long-term chart, is that the US Dollar likes to bounce 18 to 20 full points off a low. If you add 18 to 20 points off of the recent bottom at 72.70 hit in 2011, we have already exceeded the mid 92s to mid 94s that one would project on the current rally. However, if one would start at around 79.50, the most recent low hit in the US Dollar at the beginning of 2014, adding 18 to 20 points, one gets the mid 97s (where we are now) to the mid 99s. By this measure we are at a point that we have again hit our minimum rally target.
Looking at the long-term picture again, we topped in the US Dollar in September 1985, to only bottom in the middle of 1992, nearly 7 years later. We would then top again about 9 to 10 years later in the 2001 to 2002 time frame. We would then bottom about 7 years later in the middle of 2008. That would project a rally now in the dollar again for 9 to 10 years, taking us to 2017 to 2018, and we are not quite there. But although the dollar may not hit the ultimate top of the current bull phase for another 2 to 3 years, it could be much rougher sledding for the US Dollar bulls, now that we are fast approaching the 97.60, 98 and 100 resistance levels. With more resistance at 102 and 105, we should hit some short-term resistance and begin a corrective drop lower in the very near future. I see the US Dollar struggling to overtake the 98 to 100 level, and again at 102 and at 105. I seriously doubt we will reach 110 over the next 2 to 3 years and believe 120 is probably out of the question. When we fell to 71.32 in 2008, that low was about 7 full points below the 1992 low of 78.43. Thus on the current bull rally phase, I would suspect that we could miss hitting the 121.29 resistance high, by about that same 7 points, making 114 as a very likely top target.
The Long-term Chart Of The Euro
The above chart begins August 10, 1953 and goes through the present. Back in 1985 when the US Dollar hit its all-time high, the Euro hit bottom at 0.6228. Later, when the US Dollar topped just above 120 in 2001 to 2002, the Euro bottomed about 0.8350. With Friday's close of 1.0859 in the March Euro Futures, we have a ways to go to reach those extreme levels. Analysts now are projecting a Euro drop as low as par (1.0000), which would put the US Dollar at about the 102 area. It is hard to pinpoint exactly since the Euro is only 57.6% of the US Dollar Index, and the remaining 42.4% of the price influence will depend on what fluctuations we see in the Japanese Yen, Pound Sterling, Canadian Dollar, Swedish Krona and Swiss Franc.
Although the US Dollar has been in an uptrend since bottoming in 2011, and the uptrend could last another 2 to 3 years, the magnitude of the future appreciation in the US Dollar may not be nearly as great as most expect. And on a very very short-term perspective, the US Dollar has rallied virtually straight up for about 10 months and we are quite overbought as the US Dollar heads into severe overhead resistance price levels at 97.60, 98, 100, 102 and 105. Do not be surprised to see the US Dollar fail at one or many of these resistance levels and forge a decent sized correction of 5 to 10 points, even if the overall US Dollar rally continues for another 2 to 3 years before the ultimate high is up in. A short-term top is actually due right now, in both time and in price.
The thoughts and opinions in this article, along with all Stocktalk posts made by Robert Edwards, are my own. I am merely giving my interpretation of market moves as I see them. I am sharing what I am doing in my own trading. Sometimes I am correct, while other times I am wrong. They are not trading recommendations, but just another opinion that one may consider as one does their own due diligence.