The dollar's timid rally last week increased the likelihood that it eventually will fall to the 100.18 target shown before it can turn around. That would equate to a 12.7% decline since DXY topped at 114.78 on September 28. The correction would be mild relative to the spectacular run-up that commenced from around 90 in mid-2021. Bullion investors should enjoy the favorable tailwind provided by a weak dollar while it lasts. It is also providing respite to Powell & Co. by alleviating deflationary pressures that eventually will asphyxiate consumer inflation and usher in a global economic depression.
The dollar's weak bounce from p=104.09 implies that still lower prices are likely. Considering that the midpoint pivot lies just beneath a key low at 104.64 recorded back in August, the rally should have been stronger, since many bulls would have been stopped out when the breakdown occurred. We'll monitor the expected breach of the 104.09 Hidden Pivot, since, if it gets crushed, that would portend more slippage to as low as D=100.18. That would represent a still-moderate 12% correction from September's 114.78 high -- not too bad considering the steepness of the rally that saw the Dollar Index rise from 89.21 to 114.78 between early 2021 and October 2022.
As forecast, the Dollar Index has fallen into the 101.30-104.64 range, presumably bound for the 102.34 Hidden Pivot target shown. If so, this would portend a further easing of pressure on bullion over the next 4-7 days, or however long it takes to complete the pattern. A sharp rally in the meantime to the green line (x=106.58) should be viewed as an excellent opportunity to get short 'mechanically', given the steep pitch of the A-B impulse leg.
Last week's so-so bounce offered scant respite from the hard selling that has hammered the dollar since late September. Hidden Pivot levels aside, the Dollar Index looked sufficiently winded when last week ended to give us reason to expect more selling down into the void circled in the chart. It is bracketed by two lows at, respectively, 104.64 and 101.30. Although I doubt the second will be breached by this long-overdue, hard correction, I wouldn't bet the first will hold.
Friday's frightening plunge to 106.28 came within a hair of triggering a 'voodoo' buy signal, although I can't say I'd have been eager to act on it. It was the worst week for the dollar that even old-timers can recall, but still 'merely' corrective of the astounding bull leg begun in May 2021. Most immediately, if DXY takes out the low, it will be telegraphing a test of an important structural low at 104.74 recorded back in August. Beyond it lies yet another chasm with a 101.30 bottom. That would represent a correction of a little more than 50% of the 2021-22 bull.
The long-term chart shows why the month of weakness we've seen so far may not be enough to correct the moon shot begun in mid-2021. Just a little more selling will bring the Dollar Index down to a Hidden Pivot target at 109.22 that has served as a minimum downside objective for the last two months. However, the downtrend would need to surpass the 'external' low at 107.68 to turn the weekly chart bearishly impulsive. For now, let's see how the 'hidden' support at 109.22 handles whatever pounding occurs there if the dollar relapses. _____ UPDATE (Nov 8, 11:10 a.m.): Price action over the last two days has provided a new ABCD pattern with a 108.75 target. I expect DXY to get there, and also to reverse off a low within a few ticks. Here's the chart. _______UPDATE (Nov 10, 8:51 p.m.): Following a steep dive on the opening bar, DXY got traction at 108.75, but this 'hidden' support' failed and it plunged anew to 107.71. This suggests more weakness ahead, but a push above 109.09 to end the week would earn dollar bulls a reprieve.
The dollar tripped a 'mechanical' buy signal on last week's pullback to the green line (see inset), but it came off a high that fell short of our sweet spot midway between p and p2, and that's why I'm not recommending aggressive action. My gut feeling is that the signal will produce at least a one-level move from x to p, but my still-bullish long-term forecast for the dollar implies that the bounce, if there is one, should do better than that. Alternatively, if weakness stops out the pattern's 'C' low at 110.06, that would suggest a more significant correction lies ahead before DXY can blast off for D=117.16 or perhaps higher. _______ UPDATE (Oct 27, 12:16 a.m.): I expect the Dollar Index to take a potentially tradable bounce from exactly 109.28, the 'D' target of this pattern.
Much of the dollar's rise this year has taken place with stochastic indicators extremely overbought, a common trait of powerful, enduring rallies. That's why the 117.17 target shown is likely to be hit before a significant correction sets in. The pattern has signaled two winning trades - a short from p2=114.80 and a 'mechanical' buy at x=110.05 -- implying shorts from 117.17 would enjoy similar success. That is notwithstanding the pattern's obviousness. We don't typically trade this vehicle, but because it affects everything else, we monitor it closely. A strong dollar threatens to unravel the Fed's crackpot schemes and asphyxiate debtors both big and small around the world who owe dollars. _______ UPDATE (Oct 17, 9:18 p.m.): D=111.71 is my minimum downside objective, but this Hidden Pivot support must hold if bulls are to regain dominance. Here's the chart. _______ UPDATE (Oct 19, 10:20 p.m.): DXY has taken a robust bounce from 111.77, six cents above the target flagged above. This is encouraging, but the rally would need to surpass the 113.42 peak recorded last Friday for the dollar to get back on a roll.
Bulls are revved up and ready to rumble, judging from the way they smashed through the 113.58 Hidden Pivot resistance two weeks ago (see inset). That told us that the selloff that ensued would prove to be merely corrective, as it has. They didn't pause for long to carve out a nice bottom, however; instead, a v-shaped trampoline bounce suggests buyers are headed straightaway for the 117.16 'D' target of this pattern. They'll need to get past p=113.61 first, but if it's a pushover, watch DXY rip even higher.
The Dollar Index peaked on Friday seven cents above a 113.16 target that has been on our radar for more than four years. The pattern took nearly a decade to play out, implying that any correction from these levels could last for quite a while -- perhaps 12-18 months or even longer. The retracement presumably would set the stage for a renewed uptrend to the 119.37 target shown in this chart. Please note that although a severe correction down to the green line at 96.03 might be viewed by pundits as nothing less than the death of the dollar, it would in fact trigger an opportune 'mechanical' buy signal according to our trading rules. Because the dollar's daily ups and downs have correlated inversely with nearly every trading vehicle we track, we might expect a resurgence in gold, stocks and T-Bonds, among other investibles, if the dollar is in fact headed into a prolonged decline. There's also a chance it will power its way past the 113.16 target without a pause and just keep rising. That would suggest that the catastrophic deflation we've been predicting for many years is under way. A hardening dollar would tighten the screws on all who owe dollars, including debts arising from short-dollar positions in the $2 quadrillion derivatives market. _______ UPDATE (Sep 27, 5:11 p.m.): Amazing! DXY hasn't quite shredded the granite Hidden Pivot at 113.16, but it does look like it's trying to turn the resistance into support. This implies there is still plenty of unspent power pushing the dollar higher. If so, that would be very bad news for the economic world. ______ UPDATE (Sep 29, 11:28 p.m.): DXY has corrected sharply for the last two days after exceeding the target of a long-term pattern. If the retracement is going to be
