Sunday, January 4, 2015

USD US Dollar Monthly Chart 9-Year High Inverted H&S Patterns

The big story in the back half of 2014 is the parabolic spike higher in the dollar. As the dollar climbs, commodity and oil prices are in complete collapse a deflationary condition. The US dollar index is at a nine-year record high now comparing back to late 2005. If the dollar squeezes out another buck, say 92.50, the dollar will hit a record 11-year high comping back to 2003. Note how price is directly at the neckline of the blue inverted head and shoulders pattern. The dollar must decide to bounce or die from here. If price breaks up and above 91.50 the upside target is 112 (head at 72 and neck at 92 is 20 difference so 92+20=112). This is at the same level as the gap from 2002.

The purple inverted H&S is also in play and price already has broken out above the neck line at 87. The target for this inverted H&S is 101 (head at 73 and neck at 87 is 14 difference so 87+14=101). The green lines show the positive divergence and oversold conditions that created the bottom in 2008. The 20 MA crosses down through the 50 MA in 2003 forecasting big trouble ahead for the dollar which occurred. Note that now the 20 MA crosses back above the 50 MA indicating a sustainable sideways to sideways up pattern for the years ahead.

The pink box shows the very strong downward trend in the dollar for a decade until 2010 when the trend diminished (ADX under 22-ish). That told you in 2010-2013 that the dollar was basing and stabilizing which it did, and this is also reflected in gold and silver topping out and retreating (as dollar strengthens). Note the ADX is now at 25.30 and rising establishing another very strong trend only this time the trend is up.

The indicators are long and strong so higher highs are expected for the months ahead so a breakout to the upside would be expected in 2015. The dollar needs to take a rest, however, so it is simply a matter of whether price continues the parabolic orgy higher to 95 and 100 straight-away, or, price pulls back down on the way, and then continues the uptrend after taking a rest. Note that for the 2008 and 2010 parabolic spikes higher they retreated in the year following.

It is comical to hear pundit after pundit proclaim blue skies and rainbows ahead for the stock market due to weaker oil prices. In 2008 the dollar was strong and commodities and oil collapsed which led into the stock market crash. Ditto in 2010. Both events were saved by the Fed and through coordination with other central bankers such as the BOJ and ECB. Note that the three parabolic spikes for the dollar occur in 2008, 2010 and now. The collapse in commodities is a supply, stronger dollar and global demand issue. China's economy is decelerating; Europe remains mired in deflation.

The 200-month MA continues leaking lower and would be expected to flatten. The dollar breaks out above the 200 MA another bullish development. The dollar is expected to remain favorable to the upside for the years ahead but needs to take a rest. Price has not back tested the breakout from the purple neckline as yet so a retracement to 86-ish is on the table but overall the chart forecasts the dollar to move sideways to sideways higher for the next several years. A stronger dollar places a feather in the deflationist's hat. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

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