Last week's decline was the sharpest in four months and could conceivably come down to the 102.23 target shown, That would amount to an approximately 5% correction, entirely normal considering the steepness of the run-up from 100 to 107 that occurred between mid-July and November. A milder correction that reverses from p=104.79 would underscore the power of the renascent bull market begun from 90 in 2021. Wherever and whenever the pullback ends, upside potential thereupon would be to p=112.14 of this pattern most immediately, and to 124.70 ultimately. It is no exaggeration to suggest that a dollar at that height will have drastically altered the global economy and its fatally financialized infrastructure.
Since triggering a theoretical buy signal at the green line (x=105.89) a month ago, the dollar index has corrected only slightly and not closed below it. This implies that the next significant move will up and that it will take DXY to 112.20, the Hidden Pivot midpoint of a long-term pattern that projects to as high as 124.82. This is bad news for all who owe dollars, although it may eventually force the big spenders on Capitol Hill to rein in deficit spending. I used to think a strong dollar would force an end to Powell's tightening regime, but perhaps the deflationary implosion it could cause is what he intended all along.
The monthly chart shown offers an unorthodox view that should be held in mind as the dollar makes its way higher. Much higher. Last week I presented a weekly chart that went back to 2019 with a 124.72 target. This one stretches back to 2004 and has a somewhat less ambitious 'D' target at 119.37. I'll suggest sticking with the earlier version to get a precise handle on trend strength in the weeks ahead. Specifically, you should use its 112.16 midpoint resistance as a minimum upside projection for the next six to eight weeks. However, in the highly unlikely event of a vicious swoon to the green line of this monthly chart (x= 96.03) , you'll be able to recognize it for what it is: just a correction.
Last week's breakout from an impacted consolidation zone that was in its tenth month brought greater clarity to a big-picture pattern projecting to as high as 124.72. DXY could still fool us with a swoon beneath July's 99.59 low, but this seems most unlikely, given that the dollar has finally caught the scent of a central bank crisis looming in the not-too-distant future. The picture is so grim for the ECB, which issued trillions of euros in snide carrying negative rates, that the Fed is certain to come out on top. That means the dollar will, too, even though the debt deflationary this will produce is an unwanted outcome, especially by Europe. Perhaps they should start gathering firewood now, since there are going to be many cold winters in the future if fuel must be purchased from their good friends Russia and Iran. ______ UPDATE (Oct 20): An imminent close above the green line for a second consecutive month would make p=112.16 our minimum upside target for the near term.
The uptrend easily exceeded the 106.84 rally target given here last week, so I am presenting a longer-term view with a much more ambitious objective at 124.72. More immediately, however, there's a Hidden Pivot midpoint resistance at 112.16 that we can use as a minimum upside projection for the near term. As always, if buyers surpass it easily, that would portend more upside to at least p2=118.44, and thence to the D target itself.
The Dollar Index came down hard last week after topping to-the-exact-penny at a 106.84 target that had been advertised here. The rally was due for a rest, but I doubt the peak will endure for long. The ABCD rally pattern shown should help us gauge the health of the dominant uptrend. If DXY achieves D=106.64 without providing any single- or two-level pullbacks for a 'mechanical' buy, that would affirm that pent-up demand for dollars remains strong. This is going to create big problems for the world's financial system, particularly for debtors who owe dollars, and for a central bank that remains committed to tightening.
I've been bullish on the dollar since...forever, always rationalizing my bias with a deflation-based argument. However, Tom Luongo's latest newsletter provides a simpler answer, at least for the near term, to wit: Fed chairman Powell and Eurobank President Christine LaGarde are in a policy battle that the latter can't win. Although Power undoubtedly is serious about staying tight, LaGarde has gone wobbly out of fear that Europe's already faltering economy could go down the tubes with another turn of the screw. We'll be betting aggressively on Powell, and therefore a strengthening dollar, in the weeks ahead, so stay tuned to the chat room (and to your Rick's Picks email 'Notifications') for timely strategic guidance. _______ UPDATE (Sep 26, 6:40 p.m.): We've been using a Hidden pivot at 106.32 as a minimum upside target, hut here's a pattern I like even more that projects to 106.84. As always, an easy move through it would imply the uptrend is likely to continue. _______ UPDATE (Sep 27, 3:41 p.m.): Following a steep upthrust in the early going to exactly 106.84, DXY head-butted the Hidden Pivot several times before turning sharply lower. 'Where to next?' will depend on how impulsive the pullback is and how long it lasts, but we can read the trend accurately (and, perforce, profitably) in real time as the retracement lengthens on the lesser charts. The target was two months in coming, so it should not be a pushover. If it is, that will be telling us the uptrend is, and remains, quite strong.
The Dollar's impressive move off mid-July's 99.58 low will face a crucial test when it encounters the impediment shown in the chart, a Hidden Pivot midpoint resistance at 106.32 that lies less than 1% above. I am predicting an easy move through it, bringing the realization that the inflationistas have had it wrong all along; for in plain fact, consumer inflation was never going to be a big deal in comparison to a deflationary juggernaut of financialized debt totaling more than $2 quadrillion. So many owe dollars that inflation -- or better yet, hyperinflation -- would be a blessing. And that's why it is not going to happen, if for no other reason than that everyone has piled onto the same side of the bet. Those still in denial will be in for a shock as DXY continues to rally toward the 113.06 target. By then, there will be fewer dollar bears to muddy the picture, and the quacks who run the central bank, especially the hawks, will have their backs up against a wall.
The bullish pattern shown looks incapable of guile, so we don't have to stick out our necks very far to heap opprobrium on those who can't stop obsessing over 'inflation' and a dollar supposedly headed into BRIC-induced oblivion. As I will continue to point out, the last thing the world needs right now is a strong dollar, since it would increase the burden of debt for all who owe dollars. That is reason enough for DXY to keep on rising, since the mounting troubles of borrowers in and of itself will continue to exert mild short-squeeze pressure on the buck. Accordingly, we should expect the rally to continue to at least p=106.32 over the near term. When DXY pops thought that Hidden Pivot resistance, presumably headed for D=113.06, we'll see some erstwhile dollar bears start to break ranks. Recession will be full upon us by then, even if unheralded by mainstream news sources.
The dollar blew past the 104.03 'D' target of a minor pattern we were watching on the hourly chart, so I've deployed a bigger one with a midpoint Hidden Pivot resistance at 104.65 that looks likely to show more stopping power. It will have the help of an 'external peak a nickel above that was recorded on May 31, but if both fail to contain the rally, the Matterhorn high at 105.88 on March 8 that I also mentioned here will have a chance. My gut feeling is that a major breakout is imminent. If so, the deflationary implications of a waxing dollar would make it even harder for the quacks who run the central bank to continue tightening.
