Before I dig into the charts this week, I want to refer you to my last weekly email. This was last Sunday and the tagline was “Dollar Spiral”:
I’m not pointing this out to crow about my prediction that came to fruition.
Instead, I do want to point out that I made this call based on price action. I’m a firm believer that price action incorporates the news and points the way the market wants to go.
And as I’ve said repeatedly in recent weeks, we’re at an inflection point with the US dollar. That’s why I keep showing you this 45-year chart of the US Dollar Index (USDI):
I want to put things in perspective so you can see what’s happening in the short and the long term.
And in this 45-year chart, we can see that over the last 10 years from 2010, the dollar had an enormous rally which took the Euro from 1.60 to about 1.03.
However, the legs of this dollar rally are being chopped out and lower prices are on the way. More on that in a moment, but note that despite the massive 10-year rally, the USDI high is still well below its high in 2000 and that high is much lower than the one in 1985.
This sawtooth pattern in USDI means that the overall trend is down despite the enormous, periodic rallies. And what’s more, I believe we’re about to see another slide lower. This is not only important for us as traders. It also has ominous implications for the world economy at large.
I want to talk about that for a moment.
Here’s a chart that plots gold against the dollar and 5-year bond yields too:
While the dollar has been plummeting, gold has been skyrocketing. Meanwhile the blue line is the five-year bond yield (i.e. it’s tracking interest rates), and it’s been heading much lower too.
This is an omen of something called stagflation. Stagflation last happened in the 1970s and it was not a good time for the economy. We had the extremely undesirable combination of sluggish, slow growth (including high levels of unemployment) coupled with expanding inflation.
This is an awful thing for the economy and most everyone in it. It’s potentially an awful thing for investors too, but only if you don’t understand what’s going on.
Gold soaring suggests that it’s starting to price in a stagflation economy. That’s one where interest rates go down, where there’s very little growth, and gold rallies as a safe haven amidst the storm of uncertainty and fear.
The main driver behind gold is that real rates continue to plummet and don’t show signs of easing up anytime soon. That’s because all the world’s central bankers are coordinating a drop in both real and nominal rates.
(Nominal is the “headline” interest rate whereas the real rate is the nominal rate adjusted for inflation. So if the nominal rate is 1% but the inflation rate is 2% then the real rate is actually -1%, just to give you an example.)
There’s no indication this interest rate trend is going to turn around with the backdrop of the pandemic and the associated worldwide economic slowdown. So all this is going to have a real consequences, for the dollar, the stock market, and alternative investments such as gold and silver too.
Now I’m going to try and unpack all of that by looking at each chart individually.
Let’s start with the weekly chart of the USDI:
That huge long-term downtrend on the 45-year chart has truly reasserted itself. The double top we saw on the 45-year chart is visible here too. Plus there are other bearish patterns to add weight to the bearish case.
At the height of the pandemic fears, USDI thrust a hair above old highs and created a bull trap for anybody chasing dollar-correlated investments. Everyone caught long above that line is now losing money, and a lot of it, unless they get out of their position by selling.
The index not only collapsed below its old resistance/support line (marked by the first top of the double top), it also dropped below its long-term support line just last week.
There’s also a bearish head and shoulders pattern with the recent bull trap as the head and weak rallies on either side as the shoulders.
Because a head and shoulders is a reversal price pattern, this strongly implies that USDI’s recent 10-year uptrend is over. Currently, the index is about to thrust below the neckline for that pattern.
And once that happens, it should open up a huge move lower. It’s just a matter of time. Perhaps there will be a re-test of that neckline once it’s broken. If it happens, that’s where I would load up the money truck. But we may not get that retest. The market will decide, not me.
Regardless, it’s not a question of if, but when, the dollar falls.
In this week’s video report, I shared my excitement as several momentum opportunities are emerging simultaneously.
The US Dollar is seeing a historic moment, EURUSD is ready to “kick down the door”, XAGUSD is about to explode and an obscure trade is showing all the signs that it’s going to be one of the biggest trades on the board.
It was a detailed report that walked members through exactly what’s happening and the steps that need to take to get involved.
- “The only thing new is the history you don’t know” – the significant, yet unprecedented, historic moment for the US Dollar
- Why the long-term charts (45-year) charts on the US Dollar is now clearly showing a proven pattern … I’ll share what this indicates will happen next
- Why this significant shift of the US Dollar is not a case of IF, but WHEN … and what you should be doing now to maximum profitability on this monumental move
- The “Eve and Adam” bottom on the EURUSD that is trading at a major resistance level, poised to “kick down the door” (significant move is imminent based on this evidence) – watch from 5.17
- Why this remains one of the biggest opportunities on the board (watch from 10.41)
- “Whatever goes down, must go up” – why XAGUSD (Silver) is ready to explode … but the steps you must take to maximize profitability on this trade
- The final confirmation that I’m waiting on before knowing that this sleeping giant is going to awake – this will be HUGE (watch from 21.16)
- “If you weren’t there for the wedding, then you don’t want to be there for the funeral” – why this significant move on the NASDAQ could get ugly for traders that are not prepared
- Plus much more
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