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U.S. Dollar Bull Market Trend Forecast 2009 Update

Currencies / US Dollar Aug 14, 2009 - 12:01 AM GMT

By: Nadeem_Walayat

Currencies

Diamond Rated - Best Financial Markets Analysis ArticleThis 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.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 300 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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 trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Chris
14 Aug 09, 19:01
US Dollar

Way off Nadeem. The USD is headed lower not higher. The Treasury auctions have been a complete bust with the Fed using their offshore accounts to artificially boost the bid-to-cover ratio. We are headed to 68 in the dollar index.


Going loco
15 Aug 09, 04:39
US Dollar

Chris - For the last 12 months you would have made more money following Nadeem's forecasts than going against him. He is the most consistently accurate UK forecaster I have ever found. Sometimes you have to suspend disbelief because his forecasts can be counter-intuitive. Just for comparison Denninger says dollar down but Bob Hoye says dollar up. Both are intelligent people but Hoye and Walayat are where I would put my money. After reading this article I opened a dollar account at HSBC with a decent starting wad and I will be feeding it if the dollar stays above 75 on the index.

Nadeem - if you see this - it would be of interest if you would say how you trade a currency forecast. Do you buy the actual currency as I have done, or do you buy an index (if so which one?) or do you use spread betting? Thanks.


Nadeem_Walayat
15 Aug 09, 12:12
Dollar Trading

The bulk of my currency trading / hedging is at Oanda.

Though I do also use spread trading firms of which there are many.

I also have citibank currency accounts for longer term parking of cash in multiple currencies then deploy Oanda to hedge these deposits.


Nadeem_Walayat
24 Aug 09, 10:36
USD Update
Update - 24th August 2009

Current Price Action

The U.S. Dollar reversed direction after failing to break above 80 and still some way below the confirming trigger of 81. The corrective move to date is of little consequence to the forecast which remains as is.

The most recent price action implies the following -

a. That the USD puts in a double bottom before busting through above 80/81 for a strong rally.

b. A break below 77.40 would trigger a sharp drop towards 75.80 which would seriously risk a re-evaluation of the whole dollar bull market scenario which would be negated on a break below 75.00.

At this point in time I continue to favour outcome a. over b.

To keep up to date on the state of the USD, ensure your subscribed to my always free newsletter.

By Nadeem Walayat http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.


Nadeem_Walayat
02 Nov 09, 09:41
U.S. Dollar Bull Market Scenario Update

The most recent price action has seen the U.S. Dollar manage to hold onto USD 75 support that has propelled the dollar back through 76, however the trend over the past 2 months has been weak. The last update of the US Dollar bull market scenario of mid August 2009 called for a rally that targets USD 90 by the end of this year as long as 75 holds, as indicated by the original chart below :

More analysts joining the Dollar bullish scenario- The bullish dollar scenario is increasingly being joined by more 'big named' analysts including Robert Prechter and then Mike Shedlock, though the U.S. Dollar in actually bottomed in March 2008 with the subsequent trend having deviated little from projections as the January 2009 update illustrated which a forecast sideways ABCDE trend into a late July low.

DEVIATION FROM THE FORECAST - The USD has under performed during the past 2 months which is a sign of weakness and therefore suggests upside action over the coming months will be limited with a far greater risk of downside breakdown then before, so signaling caution.

ELLIOTT WAVE THEORY - The elliott wave pattern nicely resolves to a ABC decline, with C wave comprised of 5 waves down to the recent low. With the USD at 76.36 it is therefore make or break time for this pattern which suggests that the low is in and therefore the trend should now be higher in terms of the wave pattern.

TREND ANALYSIS - USD has marginally breached the down trendline from the 89 high which is a positive, however it has yet to make a higher high which would require the USD to rally and close above 76.60, which is not too distant from the last close. However the trend of the past 3 months has generated much price action in the 76 to 81 range which means its going to be tough for the USD to overcome this and is suggestion of volatile price action.

SUPPORT / RESISTANCE - Immediate support is 75 a decided break of which would target 71. Near term key resistance is as 77.50. As mentioned above there is heavy overhead resistance which implies a volatile trend through it.

PRICE TARGETS - The USD has yet to give any confirming price triggers for the uptrend, the nearest of which is at 77.50. Therefore the USD is still in its downtrend until it manages to break above 77.50 that would target a push towards the 80-81 resistance area. A longer range target for the USD is now 84.

MACD - The MACD indicator is signaling a breakout to the upside for the USD, and is just about ready to give a higher high trigger on a further bounce from the up-trendline, so suggesting the current bounce is more significant than the preceding one from 76 to 77.50.

CYCLES - The recent price action puts the USD into the 2.5 cycle low time window, the question is, is the low a technical bounce or the start of a larger trend ?, but what it does suggest that the current trend has more upside the time, which it can spend either drifting sideways or push the USD through resistance.

SEASONAL TREND - The recent trend was inline with the seasonal tendency for the USD to weaken between August and October 2009, a continuation of which would suggest a strong November and a weak December.

USD Conclusion

The dollar trend has been much weaker than expected therefore this has to factor into the conclusion which now resolves to a much shallower uptrend than previously anticipated, however I do still expect an uptrend to materialise that now projects to a more conservative 84 to be hit during the remainder of this year, probably by early December.

Inter market Implications of a Stronger Dollar - Downward pressure on stocks and commodities priced in dollars such as gold. However as I have stated above competitive devaluation may not lead to any significant downward pressure, so we could yet see all three bull markets exhibit an upward bias over the coming few months.

Overall Inter market Conclusion

It looks like all three markets will manage to trend higher over the coming months, however given the technical pictures some are expected to perform stronger than others. I would put gold on the strongest footing then the dollar followed by stocks, of the three stocks present the biggest question mark at this point as the immediate future appears bearish. But given the last closing prices of Gold $1046, USD 76.36 and the Dow at 9,712, I would expect all three to be significantly higher by year end, which is contrary to the consensus view of the inter-market relationship between these markets.

Your analyst focused on commodities for out performance.

Source : http://www.marketoracle.co.uk/Article14697.html

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 400 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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 trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

Z
11 Dec 09, 18:05
USD bull market

Hi Nadeem,

Have read some of your articles now. Was wondering, about your technical analysis.

For example, say you predicted based on elliot waves, USD to weaken march 2009-August 2009. And this in reality is due to US carry trade, the risk trade, due to the liquidity added in March..

You say your looking for a USD bull market. USD has broken its 50 day moving avg last Friday, due to non farm pay rolls better than expected, so the market anticipates an earlier raising of rates (despite Bernanes insistance otherwise)..

Now what I want to know is, how is your technical analysis related to these events. Are you saying your analysis using elliot waves and so on, made it ready for the market, whaetevr the possible news was to catch a bid on the dollar?

Or you expected better than expected news in the US, combined with the feasability of teh technical support at 75 level, to allow a break out?

For example tomorrow if the US defaultss, then this USD bull market is out right?

Please respond to my email address if possible.

Many thanks for your time


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