Wednesday, November 26, 2014

Happy Thanksgiving to you all!  I'll be spending the afternoon with my in-laws, shooting pool and watching 49ers v. Seahawks on the biggest TV screen that could conceivably fit on a basement wall. The normal routine will obtain on Wednesday, including the weekly tutorial session at noon. If there's any activity in the chat room on Friday, I'll hang with you for a while and possibly hold an 'impromptu' session that will help us hit the ground running next week.

The analysis presented elsewhere on this page for the Dollar Index is very bullish, but is it corroborated by an equally bearish picture in the euro? The answer is yes, as can be inferred from the ponderous look of the long-term chart (see inset).  How far could the euro fall? In the chat room Tuesday, I broached the possibility that it could eventually go to parity with the dollar, a level not seen since 2002. Strictly speaking however, and based on the long-term chart, I can forecast no worse that 1.08. That would represent a 13% fall from current levels and a 32% decline from the all-time high of 1.60 achieved in 2008. That number is a Hidden Pivot support, and although a bounce there would be likely, there are no guarantees that the euro would not take yet another leg down. Bottom line: euro/dollar parity is possible, but even if it is not achieved the euro still has much farther to fall.

I remain very bullish on the dollar and expect it to achieve the 90.00 target shown by early 2015. However, it is clearly winded after the steep run-up since July, resulting in more frequent consolidations to develop thrust for each successive new high. Another factor contributing to the rally's timidity of late is the implied resistance of two key peaks made, respectively, at 88.71 (June 2010) and 89.62 (March 2009).  A true bull-market breakout will require a push past these peaks, and although that outcome seems likely, it could take a while. However, if DXY were to effortlessly power past the peaks within the next 4-6 weeks, it would imply there's still enormous power in reserve to drive the bull market significantly higher. _______ UPDATE (December 9, 7:48 p.m.): DXY has sold off sharply after topping on Monday at 89.55, just a hair below the March 2009 peak. This was to be expected, but once the correction has run its course I expect the dollar to continue its bullish rampage. We'll be better able to time the reversal when we've seen the downtrend interact with some minor Hidden Pivot supports. The first of them are shown in the chart, and they lie, respectively, at 88.23 and 87.67. If the uptrend is ready to resume, this correction should reverse from the higher number. If, on the other hand, buyers need more rest, we should see the lower number exceeded within the next day or two. _______ UPDATE (December 10, 6:01 p.m.): Surprise, surprise. Yesterday's selloff came to rest a penny off the 88.23 pivot flagged above. Now, a decisive breach, if it comes, would portend more downside to at least 87.67.