The Dollar Index dipped below the red line (p=102.30, a 'hidden' support') for the third straight week, but this time it closed beneath it, implying more slippage over the next few weeks to at least D=98.71. Although this will lighten selling that has weighed on bullion, it will also increase the intensity of the world's nascent revolt against the dollar. The insurrection can only go so far, however, since the huge, largely unpayable debts that have piled up around the world are in dollars, effectively creating a massive short position against the greenback. This will ultimately come home to roost in the only way it can, via a deflation that liquidates all debts through bankruptcy. Economists and pundits seem to think the Fed will pull a 'Weimar' and hyperinflate the debt away, but there are a hundred good reasons why this scenario is an extreme outlier. I've written extensively on the topic over the last 30 years, but read Adam Fergusson's When Money Dies if you want to understand why boxcars filled with dollars will not be a feature of America's coming economic collapse.
The dollar has looked like hell for the last three weeks, but I've given it the bullish benefit of the doubt nonetheless because DXY signaled an appealing 'mechanical' buy with last Wednesday's fall to the green line (x=102.60). The implied rally target of the modest rABC pattern shown is 107.92, but that Hidden Pivot resistance would need to be slightly exceeded in order to take out a crucial external peak at 107.99 recorded last November. That would signal the likely return of the long-term bull market begun at the start of 2021 from 80.21. Alternatively, if the dollar continues to fall, it should be presumed bound for the 98.71 target shown here. This pattern also strongly implies that DXY should be 'mechanically' shorted at the green line (x=104.09). The bullish target at 107.92 would still be viable unless 100.82 were exceeded to the downside. (That's the 'c' low of the pattern shown in the inset.)
The dollar fell hard on Friday, wiping out gains achieved earlier in the week, but not before thrusting above two 'external' peaks recorded in, respectively, early December and early January. The impulse leg had sufficient power that even a relapse that takes out Friday's low should still be viewed as corrective. The next big rally target would be into the 106-107 range or even higher, but first buyers would have to get past a 'voodoo number' at 106,42 mentioned here earlier. If this scenario plays out, then gold, which rebounded sharply as last week ended, would once again come under pressure. _______ UPDATE (Mar 15, 11:35 p.m.): It's fascinating to see the dollar trading like a penny stock, leaping this morning from a low that lay just four pennies beneath a stop-out low from two days earlier. DXY appears headed for exactly 106.73, assuming it can overcome the very precise stall at p=105.09 of the pattern shown here. _______ UPDATE (Mar 20, 9:25 p.m.): The midpoint Hidden Pivot (p) at 105.09 stopped the rally dead in its tracks, sending DXY plummeting. Now, if p2=103.27 fails as support, expect the next leg down to hit 102.66 exactly, followed by a tradeable bounce. Here's the chart. _______ UPDATE (Mar 22, 9:30 p.m.): The Dollar Index liquefied the clear and compelling Hidden Pivot support at 102.66 noted above, testifying to the urgency of the Fed's campaign to destroy the dollar. Recent price action implies DXY will take out the spike low at 100.82 recorded on Feb 2. Here's the chart.
Last week's five-day stall just shy of a crucial 'external' peak at 105.63 recorded on January 6 is not a healthy sign. I've labeled it 'ominous' in the chart, although we should probably give bulls the benefit of the doubt for at least another week while they regroup. Perhaps it will take a pullback and a running start to clear the structural hurdle? If so, the retracement had better not exceed the 102.59 low recorded on February 14, since that would turn the daily chart decisively bearish and shorten the odds of a fall to 100.55, a Hidden Pivot target that is already theoretically in play. _______ UPDATE (Mar 7, 5:08 p.m.): Har-har. Markets act so predictably like fun-house mirrors that we shouldn't be even slightly surprised that today's psychotic leap from lugubriousness exceeded my 105.63 benchmark by a whopping two cents. Tuppence is plenty enough for us to focus once again on the bullish case, since the rally created an undeniable, unmistakable impulse leg on the daily chart. Let's see DXY can get past the next impediment, a voodoo number at 106.42.
The Dollar Index made modest progress last week toward a 108.01 rally target we've been using as an upside objective for the intermediate term. It should take 5-7 weeks to reach this number, assuming it is achieved at all. That is by no means assured, however. Until such time as DXY pushes decisively past the p=104.46 midpoint Hidden Pivot where it stalled last week, I cannot offer you a high-confidence forecast. More immediately, bulls will need to breach the 105.31 'external' peak recorded on January 6 to demonstrate their staying power. _______ UPDATE (Feb 25): The Dollar Index exceeded the 105.31 peak noted above by a penny on Friday. That's as significant technically as $2 overshoot, and it implies DXY will continue toward the 108.01 target. Gold will of course remain under pressure.
The steeply impulsive move begun on Feb 1 from 100.91 warrants a fresh perspective that is cautiously bullish. I've chosen a reverse pattern with a 108.01 target and a 104.46 midpoint Hidden Pivot that can serve as a minimum upside objective for the very near-term. If DXY takes it out without effort and runs up to 106, that would call for an even larger bullish pattern with a 110.95 target. We'll let price action speak for itself, but expect bullion to remain under pressure as long as the dollar is rising.
I've simplified the outlook with a single target at 100.18, stripping out another at 101.03 that is likely to be just a weigh station. A fall to 'par', if not lower, seems fated. Even if the downtrend has seemed relentless and interminable, it would amount to a relatively moderate 12.7% correction off the September high at 114.78. There is of course another possibility: If DXY heads decisively lower after testing 100, that would suggest the deflationary endgame for the global economy is farther off than I'd imagined. It is inevitable, but the most promiscuous credit stimulus in history has simply delayed it.
The dollar picked up no support on the way down through p=103.33, but that does not necessarily portend another failure when it reaches the 'D' Hidden Pivot support at 101.03. However, the seven days of distribution that have occurred since the drop from p to p2 have likely tilted the odds toward a breach of D. If a decisive one occurs, use 100.18 as a new minimum downside projection. That is the D target, on the daily chart, of A=113.15 on November 3.
The dollar's steep correction since late September will have three good chances to bottom in the weeks ahead, respectively at 101.82 (0.04 from Sunday' night's low), 101.03 or 100.18. That last Hidden Pivot support comes from the largest ABCD pattern shown in the chart (thumbnail inset) and should be familiar to those of you who have been following my Dollar Index forecasts. It seems the most likely of the three pivots to produce an important low, although the two Hidden Pivots above it will be tradeable for bounces, at least, via tightly stopped bids.
Three weeks of jitterbugging around the 104.08 midpoint Hidden Pivot support has left the Dollar Index primed for a fall to at least p2=102.13, and thence to D=100.18, a target first signaled in late November. The weakness has somewhat alleviated pressure on gold and silver and promises to contribute to their further ascent, possibly with a spike finale to an intermediate top. Presumably, it would occur above the 1908.10 peak currently forecast for the March Comex contract. ______ UPDATE (Jan 6): The Dollar Index shook us briefly out of complacency by adding an Ali Shuffle to its all-too-familiar jitterbug routine. A bull-trap rally before Friday's opening bar reversed with such ferocity that we should infer the bearish targets above are still likely to be achieved. I'll reconsider only if it pops above 105.81. Here's the picture.
