This analysis seeks
to update the existing U.S. dollar analysis of January
2009 by evaluating whether or not the U.S. Dollar bull market remains
intact and to project a trend for the USD into year end. The sideways trend
of the USD for the past 6 months in the wake of the "Quantitative
Easing" headlines that has repeatedly brought the Dollar collapse
proponents back out of hibernation on each down leg has shown little
deviation from the road map of 20th Jan 09 as illustrated by
the below original price chart.
But firstly, Mike
Shedlock writes in an recent
article that both he and the Dollar bear Robert Prechter conclude that the
U.S. Dollar has hit a major market bottom.
In a recent video
Robert Prechter says the Dollar's Hit a "Major Bottom" and that a
deflationary depression is coming.
The Dollar Sentiment
Index for the Dollar Index reports just 3% bulls among traders, an extreme
level only five times in the past 20 years, usually near an important
low," Prechter wrote on Aug. 5. "The last time we saw readings like
this was March-July 2008, just before the dollar soared." In other
words, the "short the dollar" trade is overly crowded.
Its amazing how Robert Prechter's current chart matches mine of 8 months
ago!, Note waves A and B to a new high for a flat correction. Though the fact
of the matter is that the U.S. Dollar actually bottomed in March
2008 and has been in a bull market ever since, with corrective sideways
price forecast for the first half of 2009.
Summary of Key USD
Bull Market Analysis
Update 4 - January
2009 - USD Sideways consolidation trend into July / August 2009 (US
Dollar Bull Market 2009 Update 4)
Update 3 - October
2008 - Expecting USD to correct after rallying to between 87and 90,
targeting support at 80, to be followed by a resumption of the up trend
targeting USD 92. ( U.S.
Dollar Bull Market Update )
Update 2 - August
2008 - Dollar Base building complete - breakout targeting USD 80 ( The US
Dollar Bull Market )
Update - 1 March 2008 - Dollar Bear Market
Bottom called, initial target of 80. ( DELEVERAGING- Gold and Commodities Teetering on the Brink of a
Bear Market?)
U.S. Dollar Analysis
and Forecast for the Second Half 2009
DEVIATION FROM THE
FORECAST - The USD trend tracked the forecast trend quite closely up until
failure at D, which implies significant weakness, however that has been in
part offset by the shallow subsequent dollar trend into E to complete the
forecast period. Overall the impression is of a more weak outcome than
anticipated in January therefore signaling caution against an overly
optimistic outlook for the second half of 2009.
ELLIOTT WAVE THEORY - The anticipated
correction over the first half of 2009 has developed into a clear A-B-C-D-E
correction pattern as labeled on the chart (alternative interpretation is
A-B-C(5 waves)). This implies that we should now be in store for a powerful
impulse wave higher to rival the 2008 Wave1,
though I expect this to be far more complex in nature than the more easily
interpreted Wave 1,
which suggests that the actual wave structure may break elliott wave tenants
so as to confuse elliott wave technicians, much as occurred with the Gold
bull analysis of January 2009 -Gold Price Forecast 2009 , to which I need to remind
readers that the price does not care for tenants, therefore tune yourself to
the market your trading rather than the theory your applying!
TREND ANALYSIS - The bear trend
following the higher peak at B has accumulated many bearish positions as a
consequence of being greater in time than the preceding swift uptrend into B.
This implies that the market is ripe for a swift trend reversal higher. As
with the higher high at B that failed to follow through, the lower low at E
has also failed to follow through to the downside, and hence is inline with
that for which is required for a trend reversal higher from a state of a
maximum bearish pattern, as many would have seen the break below 78 as a
signal for a significantly lower USD.
SUPPORT / RESISTANCE - Immediate support
is at the most recent low of 77.40 and further out at 75.80, which should
contain any near-term weakness. Resistance is at 81 which would act as a good
confirming trigger for a sustained advance towards key resistance at USD 90,
and still higher at USD 93.
PRICE TARGETS - On confirmation of
the uptrend on break of 81, the USD would clearly be targeting 90. On break
of which USD 93, and then USD 100. On the downside the whole scenario would
be negated on break below 75 which would target an assault on USD 70.
MACD - The downtrend from
B has depressed the MACD to a perpetual oversold state, which gives plenty of
room for a sustained and swift dollar uptrend, meanwhile downward pressure
remains weak, which implies that even if the dollar takes some time to make
its mind up, the downside looks limited therefore suggesting a worse case
scenario of a sideways trend for a month or two. There also exists a
significant downtrend line on break of which would signal a CHANGE in the
nature of the USD from bearish trend to a bullish trend, and given the
proximity of the trendline that signal could occur within a matter of days!
CYCLES - There does appear
to be a weak 2.5 month low to low cycle which given that the last low was
2months from the preceding low does put the USD in the time window for making
a cycle low and therefore implies that the USD may already have made a low at
USD 77.40.
SEASONAL TREND - The seasonal trend
is for the USD to significantly weaken between August and October 2009. Therefore
the analysis so far is against the seasonal trend outlook. However note that
the we are looking at a new U.S. Dollar bull market so there it is expected
that the trend will be contrary to the seasonal trend which is built upon
many years of bearish data.
FUNDAMENTALS - The leading
indicator of economic activity, the Stock markets which bottomed in March as
per the analysis Stealth
Bull Market Follows Stocks Bear Market Bottom at Dow 6,470 , most small
investors / traders are still hooked on the pervading bearish commentary and
await positive data that the economies are recovering. However by the time
the data is revealed the markets will have already moved. Therefore viewing
fundamental data at important market junctures continues to be a pointless
exercise much as I voiced for stocks in March 2009 and now for the USD in
August as the pervading fundamentals (old news) are still predominantly
bearish i.e. a mix of record budget deficits and Q&E.
Conclusion
The USD at 78.40 is
not far off its recent low of 77.40, so whether or not it breaks below 77.40
before going higher, the overall conclusion is positive for the US Dollar to
exhibit a volatile uptrend into the end of 2009 and probably beyond. Key
resistance lies at USD 90, which it should achieve before year end. This
scenario remains in force unless the USD breaks below 75.
The implications of a
dollar bull run is generally bearish for commodities such as gold, which I
will cover in a future newsletter (subscribe to my always free newsletter to
get this analysis in your in box) as well as a trend forecast
for the British Pound.
Nadeem Walayat
Market Oracle.com.uk
Nadeem Walayat is the editor of
MarketOracle.co.uk.and has over 20 years experience in trading and investing.
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