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U.S. Dollar Surge Implications

Currencies / US Dollar Nov 02, 2013 - 04:22 PM GMT

By: Toby_Connor

Currencies

A rather interesting development occurred on Friday, and one that I wasn't really expecting. The dollar sliced right through its intermediate trend line on its first attempt. I thought for sure we would see some kind of pullback from that trend line before a break. In my opinion this signals that there are a lot of people caught on the wrong side of this market.


DXY Chart

The ferocity of the first five days out of this yearly cycle low has me wondering if the megaphone pattern isn't still in play and we're about to see a test of the upper trend line area over the next 1-2 months.

DXY Chart 2

If we take a look at the euro chart we can see that the daily euro cycle is only on day 12. That implies it still has another 8-13 days before finding its next daily cycle bottom. The dollar should have those same 8-13 days to rally before this daily cycle tops.

Euro Chart

Originally I thought we might see a test of the 200 day moving average over the next 4-6 weeks. But the explosive nature of the first five days, and taking into account this daily cycle still has another 8-13 days to go before topping, we could see a test and break of the 200 day moving average over the next 1-2 weeks. I think we would then have at least one more daily cycle higher before the intermediate cycle tops. Two daily cycles of this kind of behavior could definitely send the dollar back up to test the upper megaphone trend line over the next 2 months.

I'm starting to get the feeling that this rally out of the yearly cycle low is going to be a lot more powerful than almost anyone is expecting, including me. In order to turn this back down it may require a fundamental change in the market such as an increase in QE. I don't believe that is politically feasible at the moment unless the stock market really starts to tank in front of the Christmas holidays.

    Toby Connor

    Gold Scents  

    GoldScents is a financial blog focused on the analysis of the stock market and the secular gold bull market.   Subscriptions to the premium service includes a daily and weekend market update emailed to subscribers.  If you would like to be added to the email list that receives notice of new posts to GoldScents, or have questions,email Toby.

    © 2013 Copyright Toby Connor - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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