DXY

Last week, the dollar pushed decisively above a trendline stretching back nine years (see inset). This suggests that the rally begun in 2011 is gathering force for an assault on a series of descending bear-market peaks recorded over that time. The peaks are pretty closely spaced, so it wouldn't take much of an upthrust to generate an enormously powerful, bullish impulse leg that exceeds them all on the monthly chart. That would break the back of the dollar's 13-year bear market, effectively tightening the deflationary noose around the necks of all who are short dollars.  Lest you miss the implication of this, virtually everyone who owes dollars, including mortgage debtors, is effectively short them. On the other side of the bet, of course, are bondholders.  If the dollar continues to blast higher, it would imply that they, not debtors, who implicitly rely on constant inflation to easy the burden of repayment, are going to be the big financial winners in the end.

The Dollar Index has been consolidating since early October for a likely push to the 87.98 target shown. Although this would leave it just shy of a breakout above the key resistance represented by the 2010 high at 88.71, it would not exhaust the rally targets that can be projected from 2011's bear-market lows.  The highest of them would not only beat 2010's top, it would also surpass the equally daunting one made a year earlier at 89.62.  If both of these resistance peaks are going to be exceeded, confirming the health and longevity of the dollar bull, we should see hints of this in the failure of corrective abc patterns in all time frames to reach their D targets.

The Dollar Index has some rally room before it achieves the 87.98 target shown. The move would amount to 2.5%, but it could take as little as a week to reach at the rate this vehicle has been climbing. Since there is double stopping near the target that goes back to major highs recorded in 2009 and 2010, I'll suggest reversing any long positions and shorting there by offering 200 shares at 87.96, stop 88.06. (Note: The symbol $DXY isn't tradable, but you can approximate it using DXZ14, the futures contract, which is trading within about 0.15 of $DXY at the moment.  I couldn't use the futures contract to project a long-term rally target because the current December contract was not trading back in 2011, where I found a serviceable point 'A' low.) ______ UPDATE: We'll back away from the trade suggested above, since DXY has begun falling from a high at 86.75 that fell more than a point shy of our target. _______ UPDATE (March 31, 11:43 p.m.): DXY took off after having gone no lower than 96.17. The failure to reach a corrective target is bullish. _______ UPDATE (June 1, 9:42 p.m.): A little rally here, a bullish reversal there, and in just two short weeks the dollar has recouped more than half of the correction begun from just above 100 in mid-March. Keep in mind that my long-term forecast sees the Dollar Index testing highs near 120 that were made nearly 15 years ago. 

Although T-Bond prices have tracked the dollar's ups and downs most of the time, the chart shows that they have occasionally gone their separate ways, at least for a while. One implication is that the dollar's powerful rally since early July is not likely to continue for much longer without eventually exerting an upward pull on T-Bonds. And this is what we expect, since our current rally target for the Dollar Index at 87.98 leaves running room that is almost equal to the impressive rally that has occurred over the summer. Since T-Bond prices move inversely to yields, that would augur lower long-term rates in the future.  Our curiosity about this dynamic is more than merely academic, since we have been recommending a bullish T-Bond play using equity options for leverage. As to why a strong dollar has not sucked more money into U.S. Bonds, it could be because speculative money is being deployed directly in currency bets rather than in such dollar proxies as T-bonds. Whatever the case, our outlook is for much lower long-term rates, notwithstanding all of the fear and anxiety that has come to attend every utterance from the Fed. It is one thing for Yellen & Co. to pretend the economic recovery is strong enough to threaten us with inflation. But that is just the central bank talking its book -- 'managing expectations', as it were. In reality, and as is plainly obvious, the recovery is so weak that even a small upward shift in rates would put the U.S. on the same recessionary track as Europe. In no event should we expect an 'outbreak' of inflation, and even less the kind of economic recovery that might strain the supply of dollars.

The Dollar Index turned higher yesterday an inch from a correction target that had been three weeks in coming (see inset). This portends a bullish change for the intermediate term.  The actual target is 79.74, and there is always a chance it will be breached. If so, there's an alternative target at 79.62, but if it fails as well, especially without a fight, the implication would be more slippage to as low as  78.91, where a key low recorded in early May would thereupon beg to be tested. _______ UPDATE (11:17 p.m. EDT): Yesterday's low occurred at 79.74 exactly. If the dollar is about to reverse and move higher, it will have to happen here, and now. _______ UPDATE (July 9, 2:33 a.m. ET): The dollar rallied strongly for a few days, but it is still not out of the woods because the move narrowly failed to clear an important 'external' peak at 80.38 recorded on 6/26. _______ UPDATE (July 16, 6:55 p.m.): DXY came within an inch of a clear and important Hidden Pivot rally target at 80.60 yesterday (see inset, a new chart). However, it will have to push past it to imply that the rally from the July 1 low (which had been predicted to-the-penny) is more than just a flash-in-the-pan. _______ UPDATE (July 30, 2:53 p.m.): 81.85, here we come!! (See inset, a new chart.) _______ UPDATE (August 3, 6:15 p.m.): Last week's top hit 81.57 -- close enough for us  to consider the target fulfilled, but also mildly bearish for the short-term because the target was not quite reached. That could still happen, so we'll keep an open mind for now.

The Dollar Index still looks primed to fall to at least 77.81, a Hidden Pivot that looks compelling on the daily chart (see inset).  If so, this would square with my analysis for Comex Gold, which sees a potentially important low forming not far beneath Sunday night's so-far bottom at 1281.00. Bearish signs in the dollar are clearer at the moment than bullish ones in gold, arguing for caution if you are attempting to bottom-fish in the latter. For an exact price where this could be done using a tight stop-loss, check out today's tout for the June Comex contract. ______ UPDATE (April 30, 11:35 p.m. ET):  Two key Hidden Pivots to monitor on the way down are 79.36, a 'midpoint' support; and 78.74, its sibling 'D' target.  Both should evince a tradable bounce, but if the higher number fails, especially on a closing basis, look for the selling to continue down to the lower, at least. _______ UPDATE (May 26, 11:46 p.m. ET): A strong rally has developed from 78.91, a little more than point above our downside target. This is bullish on its face and would become still moreso on a print above the 80.60 peak recorded on April 4 (see chart). _______ UPDATE (June 2, 12:46 p.m. ET):  Back to trendlessness again?  The little s.o.b. topped last 233k at 80.58, two ticks below my bullish benchmark. My hunch is that it will push past the resistance today or tomorrow, but we'll wait for it to happen before we draw any inferences. _______ UPDATE (June 6, 12:15 a.m.): Despite yesterday's spike high and the dive that followed, a bullish target at 81.31 will remain viable until such time as 79.88 is exceeded  to the downside.

The drumbeat of dollar bears has grown louder in recent months, with some of my colleagues suggesting that a collapse is imminent.  Technically speaking, I'm just not seeing it.  The Dollar Index has in fact been one of the world's most boring trades for the last three years and is currently thrashing around near 80, about where it was ten years ago. In the intervening decade, although there have been some big swings, it has crossed trendlessly up and down through 80, the approximate midpoint of a 20-point range, no fewer than 15 times. If I had to bet which direction the next, presumably insignificant, move will be, I'd give 6-5 odds that it will be up. Don't' get me wrong: I completely agree with those who tirelessly assert that the dollar is crap. Even so, it is the crap the world chooses to hoard against the threat of financial collapse; it is the crap that financiers bet on whenever some geopolitical crisis causes a global tremor; and it is the crap that the paper shufflers bet with  -- to the tune of a quadrillion dollars -- whenever they want to make big money with relatively little work. These factors greatly outweigh any reservations they may have about taking dollars in exchange for all of the things that Americans consume.  Crap or not, the dollar will remain buoyant until the day the rest of the world realizes the U.S. economy is kaput and that the confidence that supports the financial shell-game was egregiously misplaced. This will happen with the swift, destructive force of a nuclear blast, by the way, rather than via a comfortable and more or less predictable process of depletion. _______ UPDATE (March 2, 9:56 p.m. EST): The dollar has bounced precisely from the 79.68 target shown (see inset),

For purely technical reasons, I'll stick with the bullish forecast that has obtained here in recent months. However,the yellow flag is out, since the apparently crumbling U.S. and global economies (see Today's Action) might warrant an announcement shortly that would jeopardize the Fed's vaunted 'tapeworm' program. Sure, the very concept is a fraud to begin with, and a feeble-hearted one at that, but even now the spinmeisters are doing a tricky two-step by fostering the idea, not that the tapeworm will be reversed, but that "interest rates will be held near zero for a long-long time."  That's the official story at this point, and there is no reason to doubt that the intent is there. Under the circumstances, the dollar's upside potential would appear to be at least somewhat limited.

The dollar's intraday charts have turned impulsively bearish over the last week, although there is not yet any technical evidence to suggest a serious decline is coming. Nevertheless, we'll need to monitor DXY's vital signs closely, since any pronounced weakness could hold threatening implications for yields. If the downtrend is going to stay within the range of the last few months, we should see a robust (and tradable) bounce from whatever p midpoint forms (see inset for a hypothetical sketch). _______ UPDATE (February 5, 12:55 a.m. EST): The Dollar Index has in fact taken a wicked bounce from 'p' that is bullishly impulsive on the 480-minute chart. This implies more strength to come -- and that any moderate pullback be regarded as a buying opportunity.