(Editor’s Note. Direct Links follow each chart)
The dollar continues to do its best to mask its true intentions. A week ago Thursday the dollar plunged 86 cents giving up its gains for the prior 8 sessions. The dollar appeared to be en route to a daily cycle failure. But last week our cycle counts caused us to recognize that Friday the 24th was day 19 and that the dollar just entered its timing band for a daily cycle low.
The dollar began this week in a bear flag pattern but broke bullishly out of it on Thursday to declare a new daily cycle. Friday delivered a clear and convincing break of the declining cycle trend line to confirm it as day 5 of a new daily cycle.
With the dollar leaving behind a right translated daily cycle our expectation is to see this new daily cycle print a higher daily cycle high. Which means that the dollar should break above 81.38.
But you will notice the declining 200 MA currently sits at 81.41 and will likely provide resistance.
The dollar printed it three year cycle peak at 26 months in July. The decline into the three year low requires the dollar to lose the 200 MA. We see that the dollar tested the 200 MA prior to setting its three year peak and tested it again right afterward. When the dollar broke below the 200 MA in September it signaled its decline into the three year cycle low.
The dollar printed a yearly cycle low in October and is now back testing the 200 MA. Did the dollar leave behind a three year low in October. It’s possible but not likely.
After the three year cycle peak the dollar tends to test the 200 MA by overrunning it in an initial test. Then it rallies back above it only to break below once again. Only after a failed back test does the dollar decline into its three year cycle low.
So currently the dollar is back testing its 200 MA. It can even overshoot it, but I suspect that once this daily cycle peaks, the way for the dollar will be lower.
Stocks have been on an incredible run that has not seen a failed daily cycle in over one year. The last failed daily cycle printed in November of 2012. That streak is now being threatened.
The daily equity cycle peaked on day 18 but soon rolled over into a waterfall decline. It appears that this week stocks have been consolidating that decline in what I suspect to be a mid-point consolidation. Friday was day 29 for the daily equity cycle. Monday stocks enter the timing band for a daily cycle low that could stretch for 3 weeks. With this being the fifth daily cycle of the current intermediate cycle it is quite likely to see stocks break below the 1767 level on its way into an intermediate cycle decline.
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