As you’ll see from this week’s analysis, I believe we’re at an inflection point in the markets right now.
The first and probably most important of the asset classes in question is the dollar. Here’s a chart of the USDI (the US Dollar Index):
This is a 45-year chart and one I’ve discussed this before, but it’s vital enough to highlight for you again.
Note that USDI has had a 10-year bull run from 2010 to the present. I believe this ascent has run its course, USDI’s bull run has maxed out and that we’re going to start reversing lower.
Think of a long plane flight where you take off and reach 26,000 feet in the atmosphere, and then you’re approaching your destination. Suddenly you feel that first bump that marks the start of the descent to lower levels. It usually takes 30-45 minutes after that bump to land, but the descent has to begin before it can end. I think we’re at that first bump and USDI is on the way to a major descent against a host of other major currencies.
What makes me so bearish is the pattern of lower highs that’s been playing out over the last 45 years. Even though USDI is much higher than it was 10 years ago, it’s at a much lower high than in 2000 and certainly 1985 too.
That means USDI has been in a long-term stealth bear market. And now we’re at a key inflection point along the trendline of lower highs. To my mind, it’s not “if” the dollar going down but “when”. It may drift sideways from here, but inevitably it’s heading lower.
How long should the descent last?
The chart informs us that each major trend in the USDI lasts 5-10 years and sometimes longer. That suggests the next move down should also last several years.
Now here’s EURUSD (the Euro versus the US dollar):
Consistent with USDI’s multi-year rally, EURUSD has declined from about 1.70 ten years ago to its present level of around 1.10.
Consistent with the view that USDI is going to turn and go lower, it would make sense that EURUSD should begin to turn and go higher. This is what we’re starting to see.
EURUSD has established multiple bottoms around the 1.04 – 1.06 price level and now there’s been a recent curve where EURUSD has been unable to go lower. This is like a beach ball where you try and push it underwater. Once you push it down as far as you can get it – and then lift off your hand – the ball explodes into the air.
Since EURUSD has been unable to press lower, it follows that when something can’t go in one direction, it goes in the other.
That’s why I feel EURUSD looks like a bear trap right now where all the bears that were chasing the lows could now be trapped as the pair begins moving up. A bear trap could set the stage for and explain an explosive move to the upside.
Now the danger here is the timing of the summer season during which most FX pairs tend to go sideways. So we could see nothing but choppy, back and forth price action into July, August, and even September.
But I do think it’s worth taking a position in EURUSD. Assuming you set a sensible risk level and stop-loss, the worst thing you have to endure is prolonged sideways behavior.
However, I strongly believe you’ll ultimately be rewarded if you’re patient here. The current level might prove to be a phenomenal place to get in, take a position, and wait for the long term.
There’s more evidence to support this view with EURGBP (the Euro versus the British pound) because it looks like the Euro has dug in against the British pound too. It looks set to resume its trajectory higher.
If we go all the way back to the 2015 timeframe, EURGBP shows a governing double bottom that has defined the lows and led to a long-term rise in prices. As there’s still no top pattern in place, we can assume prices will keep going higher and so the double bottom remains the governing pattern here.
This is reinforced by a more recent double bottom that occurred earlier this year, plus an even more recent rounding bottom. EURGBP looks set to keep going higher for the foreseeable future.
Now here’s USDJPY (the US dollar versus the Japanese yen):
I’ve talked about this pair and this chart ad nauseum for weeks and months because there are so many bearish price patterns that suggest USDJPY’s long-term trajectory is lower.
However, the summer season appears to be holding this pair within a lackluster back and forth trading range for now.
A tight trading range was also the scenario for a significant portion of last year, yet while it might have looked boring for some, it did pay off. By waiting for the right opportunity, I made 1,000 pips when USDJPY crashed to the neckline of the descending triangle.
I feel USDJPY will touch and probably breakthrough that neckline again this year. That doesn’t mean this pair won’t go back and forth for a while yet. It might even rally to the trendline of the descending triangle. But I see any such rally as an opportunity to add to my short positions.
In the meantime, I’m maintaining my shorts on the basis of the descending triangle, the recent H-top which also appears to be part of a head and shoulders pattern, and the historical double top/head and shoulders pattern that started the initial descent.
Ultimately, the direction of the USDJPY is down. We could go nowhere for the next few weeks and then suddenly breakdown with no warning. That’s why I’m staying short and waiting this out while adding on any rallies.
Let’s take a look at AUDUSD too (the Australian dollar versus the US dollar):
If the US dollar is going to weaken then it makes sense AUDUSD will rise.
This pair is an interesting inflection point right now. It’s approaching its long-term downtrend line while also beginning to break above its long-term support (now resistance) line.
AUDUSD is not far from the 0.67 – 0.68 level and could very well march higher to significant resistance at 0.70. My expectation is that we’ll see consolidation and perhaps even a setback before AUDUSD has the strength for a major run to the upside.
That’s because so far AUDUSD has established only a V bottom. This pattern normally doesn’t provide a stable foundation for a sustained move. I think we need to see more consolidation or even a second (higher) bottom here.
Certainly, the first bottom is well-established when AUDUSD initially dropped under the repeatedly-tested 0.67 level. However, the speed of the bounce makes that drop look like a bear trap.
So I’m now inherently bullish long-term on AUDUSD, but very open to the possibility that we could get back and forth price action at current levels. I think we’re unlikely to test or make new lows here.
Be on the lookout for opportunities to initiate long positions in this pair.
The US at an inflection point, both in the markets and in society.
With protests throughout all major cities, political unrest, and over 100,000 deaths due to the pandemic that is now being brushed under the carpet.
With 40m now unemployed and health, climate, and structural crisis in our hands, a spotlight is being held to the US like never before and we’re going through the worst quarterly decline in US history.
But how is this impacting the markets?
Well, in this week’s video report, I shared the big opportunities that are emerging and why the US dollar is in serious trouble.
- Why the ten-year bull run on the US Dollar has run its course … and what I predict is going to happen next (cover your eyes if you’re squeamish)
- What the “Eve and Adam” double-bottom on the EURUSD means and why I’m predicting that this trade is going explode (a big opportunity if you can get the timing right) – a full explanation from 6.34
- Why you WILL be rewarded if you get involved in this trade (but why it will only favor the patient).
- Why a “governing double-bottom” from 2015 on EURGBP was the catalyst to five-year highs, and what the most recent “double bottom” means for what is going to happen next
- Could be the USDJPY be the next BIG trade? I share what I’m looking for before getting involved in this potential MONSTER (watch from 14.25)
- The interesting “Trap Phenomenon” that I’m seeing across multiple markets, and why it presents a big opportunity on the AUDCAD
- What is going to happen next on Oil after the huge collapse (and why I’m seeing a trap phenomenon across multiple markets)
- What the two-year relationship between the price of Gold and the price of Silver suggests, and the huge “Double-Top” that could result in a historic high (watch from 26.26)
- Why the NASDAQ has quickly recovered and why it’s starting to challenge new highs? I share my thoughts and why I would stay away
- Plus much more
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