I thought I would do a deeper dive to revisit the currencies and US Dollar
again, because there are a lot of comments out in cyberspace and the general
media about how things are not that bad. The US stock market is having a massive
short-covering rally, which is merely a mechanical knee-jerk reaction to an
oversold condition. As I mentioned last week, there is still going to be another
2-3 weeks of upside in the "other currencies" and commodities, but when a top
is put in place, one will want to make sure they are sitting on a chair, because
it will get ugly.
Currencies
The daily chart of the Canadian Dollar Index is shown below, with the lower
21 MA Bollinger Band beneath the 34 and 55 MA Bollinger Bands in close proximity
to each other indicates an oversold condition has been generated (A mild overbought
condition has been generated, but two Bollinger Bands under the 21 MA Bollinger
Band trumps the other). Full stochastics 1, 2 and 3 are shown below in order
of descent, with the %K above the %D in all three instances. Extrapolation
of the %K in stochastics 2 and 3 suggest another 3-5 weeks of sideways to upward
price action before a top is put in place. The likely area for topping out
remains between 79 and 80...anything higher would be extremely short lived
and make the next leg down that much harder.
Figure 1
The daily chart of the Australian Dollar Index is shown below, with the upper
21 MA Bollinger Band above the 34 MA Bollinger Band indicates an overbought
condition has been generated. Also, a price excursion above the upper 21 and
34 MA Bollinger Bands suggests a pause in price is likely over the next 2-4
days before any upside move occurs. Full stochastics 1, 2 and 3 are shown below
in order of descent, with the %K above the %D in all three instances. The Aussie
Dollar has risen 5 cents over the past month, so at the upside is limited to
76-78. There is a little more of a broader range for a top compared to the
Canadian Dollar. There is the potential for another 2-3 weeks of upside before
any sort of a top is put in place.
Figure 2
The daily chart of the Euro Index is shown below, with Bollinger Bands in
their proper order of alignment indicates no overbought or oversold conditions
exist at this point in time. There is currently a quadruple top in place, at
114, so a breakout above 114.5 on a weekly basis could see a move to 120. Full
stochastics 1, 2 and 3 are shown below in order of descent, with the %K above
the %D in 1 and 3 and beneath the %D in 2. Extrapolation of the %K trend in
stochastic 1 suggests 2-3 weeks of continued sideways to upward price action
before any sort of a top is put in place. As with many commodities, there was
a strong surge last week, so expectations of another 2-4 days at a minimum
of sideways price action before another move higher should be considered.
Figure 3
US Dollar Index
The daily chart of the US Dollar Index is shown below, with lower 21 and 34
MA Bollinger Bands in close proximity to each other with declining stochastics
suggests further weakness in the US Dollar. Full stochastics 1, 2 and 3 are
shown below in order of descent, with the %K beneath the %D in 1 and 3 and
above the %D in 2. All of 2015 represents a huge sideways consolidation after
the impulsive move that was put in place very early on this year. There is
reasonable support between 93.5 and 94.0, so downside at this point in time
appears restricted. With significant market weakness expected after rallying
in the broad stock market indices occur, expect the decline to strengthen the
US Dollar as liquidation ensues.
Figure 4
The weekly chart of the US Dollar Index is shown below, with the lower 55
MA Bollinger Band continuing to rise towards the sideways price action, suggests
that at some point within the next 2-3 months enough of a reduction in space
between the two bands will represent enough of a reduction in volatility to
trigger the next leg up. Full stochastics 1, 2 and 3 are shown below in order
of descent, with the %K marginally above the %D in 1 and beneath the %D in
2 and 3. The %K in stochastic 2 is still declining, with the price drifting
sideways further supports the US Dollar continuing to drift sideways for up
to 2-3 months before the next sharp move up commences.
Figure 5
The monthly chart of the US Dollar Index is shown below, with the upper 21
MA Bollinger Band above the 34 and 55 MA Bollinger Bands suggests a very overbought
condition remains in effect. Because of this one observation, it is entirely
possible for the US Dollar to continue trading within a very narrow range for
another 2-3 months before breaking higher. There is a huge gap between the
lower and upper 55 MA Bollinger Bands, but if one looks back to 1998 to 2002,
a very similar pattern was developing. As such, the US Dollar is not likely
to hit a major high for at least 2-4 years from now. Full stochastics 1, 2
and 3 are shown below in order of descent, with the %K above the %D in all
three instances. The stochastic setup closely resembles the 1998 to 2002 time
frame, so it remains conclusive that another 2-3, maybe 4 months of continued
sideways to downward price action continues before sharply reversing to the
upside. As I have been stressing for the past year, the US Dollar is going
to have far more strength than most expect and the coming move will pull even
more surprises. Continue to be prudent with investments...the US Dollar longer
term continues to be the safest investment.
Figure 6
The short-term Elliott Wave count of the US Dollar Index is shown below, with
wave A completing in November of 2014 as an impulsive pattern. The entire move
from November until present is thought to be a part of a running correction
pattern. At present, wave [y] is either completing a triangle, or is a double
correction, with its final structure being a triangle. A longer-term alternative
correction would be the (a)-(b)-(c) move of [y] being an elongated flat representing
one segment of the 5 legged corrective structure. If this pattern were to be
valid, then each subsequent move must take at least 2 months. This would put
the earliest date of completion into February 2016, with the latest being around
June 2016. I am leaning towards either of the first two scenarios, with another
2-3 months of sideways price action before moving higher. Since wave A was
impulsive and wave B appears to be a running correction, wave C should be at
least 1.618x the height of wave A, or 13 cents. Wherever the US Dollar bases
at the end of this corrective pattern, slap 13 cents to the upside and that
represents the minimum upside price objective.
Figure 7
The mid-term Elliott Wave count of the US Dollar Index is shown below, with
wave B thought to still be forming. When wave [E] completed in July 2014, it
marked the end of a longer-term correction in the US Dollar and the start of
a new bull market. Although the move up in the US Dollar exceeded above wave
A, it is important to note that the lower Degree structure is purely impulsive
above wave A. Implications for this requires wave C to also be impulsive in
nature once wave B is complete, which as discussed earlier is probably 2-3
months from now. The consolidation phase of the US Dollar should be expected,
based upon a net upward move of 21 cents within a 9 month period. One thing
is for certain...there is at least one more leg higher in the US Dollar which
will either complete the upward trend, or merely be a pause for another move
higher. My thoughts are the US Dollar puts in a high between April and June
2016, followed by a 12-18 month correction before moving yet higher as it creates
an ongoing currency crisis. Based upon this scenario, a top in the US Dollar
Index occurs sometime between 2019 and 2021...I leave a window as I do not
want to close it and lock into a date that cannot be foreseen...the trend however,
should evolve as described. The present sideways price action in the US Dollar
can be viewed as a bull flag, which still requires another 2-3 months of time
before completion. Everything is moving under their own accord these days,
so I am not even going to try and seek correlations between markets, because
they can disappear as quickly as they were discovered. A weaker US Dollar has
raised the price of oil and other commodities, which will weaken profitability
of some mining companies...not much of a difference between $40 or $50 USD
oil, but at the margin it can mean a lot. Be careful out there because these
markets are extremely volatile.
Figure 8
That is all for today...back tomorrow AM. Have a great day.
