Wednesday, December 07, 2016

Rising Dollar, Rising Tension

This is a chart of the US Dollar Index, which has the symbol DXY in futures markets. The index is almost 60% euro, with yen, pound and Canadian dollar making up the bulk of the remainder.

Without getting too detailed, traders use technical analysis in the belief that human psychology is immutable. Faced with similar situations, people react in similar ways. Hence patterns in the market.

The U.S. dollar is the reserve currency to the world so it has very long patterns that correlate to long-term business cycles. A full cycle takes almost an entire generation. It peaks in 1985, and 2002, and if the pattern holds, maybe sometime around 2018-2019. The time it takes to unfold is similar, with the move split into thirds, an equal time of falling, stabilizing, and rallying. We are now in the rally phase since 2014. It's only the mid-point of the bull market based on the historic pattern. If the pattern holds, a global financial crisis is very likely in President Trump's first term.

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