Death of the Dollar – The Gold Train Update

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Back in January we discussed gold’s relation to the dollar.

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We looked at the above chart which demonstrated that gold enters a bullish market as the dollar declines into its 15 year super cycle low.

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The updated chart shows that gold has begun to trend higher as the dollar has begun to trend lower.

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A closer look reveals that gold has reversed from printing lower lows to now printing higher lows. The dollar also had a change. It went from printing higher lows to now printing lower lows.

In this week’s Special Report, The Gold Train Update we will take an updated look at the driver of the gold train — the dollar. We will look at were the dollar is in its yearly cycle, 3 year cycle and its 15 year super cycle. We will look at the DNA markers that signaled the previous dollar bear markets and show that those markers have been triggered again.

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Stealth Dollar Low

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The dollar has been displaying tremendous relative strength as it has rallied for the past 45 days. This is contrary to our cyclical expectation for an impending 3 year dollar decline. A possible explanation could be that the dollar has already printed a stealth 3 year cycle low.

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The dollar formed a failed yearly cycle in May. Our expectation was to see the dollar tag the declining monthly trend line and then continue into its 3 year cycle decline.

Instead the dollar is breaking above the declining monthly trend line. This aligns with what we see with the monthly cycle bands. Cycle band theory tells us that a close above the upper cycle band indicates that a cycle low of a higher order has been left behind. In other words, a close above the upper monthly cycle band would signal that May printed an early 3 year cycle low.

3 $$$ stealth 3 yr low

I would like to remind you that no one thought that the dollar printed a 3 year low back in May 2014. I did not have the cycle band tool back in 2014, but as we can now see the close above the upper monthly cycle band confirmed the new 3 year cycle.

There is a concern that a May, 2016 three year low would have only been 24 months.

36 Months – 1978 – 1981
28 Months – 1981 – 1984
45 Months – 1984 – 1987
38 Months – 1987 – 1991
19 Months – 1991 – 1992

30 Months – 1992 – 1995
41 Months – 1995 – 1998
45 Months – 1998 – 2002
29 Months – 2002 – 2004
39 Months – 2004 – 2008

38 Months – 2008 – 2011
36 months – 2011 – 2014
24 Months – 2014 – 2016 ???

Twelve 3 year cycles stretching from 1978 – 2014
424 months/12 = 35.33 months

The average 3 year cycle low prints every 35.33 months. However there has been one yearly cycle that ran 29 months and another lasting only 19 months. So it is certainly possible that May hosted the 3 year cycle low. A close above the upper monthly cycle band will confirm the new 3 year cycle.

This is just the beginning of the discussion. In the Special Dollar Report: Stealth Low, we will look that the ramifications if May actually hosted the dollar’s 3 year low. I will break down what this means for the dollar’s 15 year super cycle. And then tie this in with what happened to gold the last time this occurred.

This week I am offering a special 6 week trial membership along with the Special Dollar Report for $15. You will receive 6 weeks of Likesmoney Subscribers access along with the Special Report: Stealth Low.

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Dollar Bull ???

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With the FED still planning to raise interest rates this year and the ECB cutting rates on Thursday, seems that the bullish case for the dollar is still intact.

However on closer inspect we see …

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… that the dollar has begun delivering bearish surprises.

My cycle analysis indicates that the dollar has reached an inflection point in its 15 year super cycle.

In the Weekend Report I break down where the dollar is in its daily, weekly, and yearly cycles. This week I also discussed where the dollar was in its 3 year cycle and its 15 year super cycle which is available with a trial membership.

This week I am offering a special 6 week trial membership for $15. The goal of the Weekend Report is to develop an on-going framework of expectations using cycle analysis.

The Weekend Report discusses the Dollar, Stocks, Gold, Miners, The CRB Index, & Bonds in terms of daily, weekly and yearly cycles.

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In addition to the Weekend Report, the 6 week trial membership also includes: The Weekend Updates and the Mid-Week Update.

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* NATGAS
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It’s All About the Dollar …

The dollar rallied again on Tuesday breaking out to a new daily cycle high.

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Tuesday was day 9 for the daily dollar cycle. By printing a higher daily cycle high the dollar has now shifted the odds for this cycle to form as a right transleted daily cycle. Quite frankly, the first daily cycle of a new intermediate cycle should form as a right translated daily cycle. But with the dollar printing that reversal candle on day 7 we needed to keep an open mind to the possibility of a left translated cycle forming.

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The dollar has now entered the 3rd intermediate cycle of the current yearly cycle. Yearly cycles are normally comprised of 2 to 3 intermediate cycles. Therefore our expectation is to see this cycle form as a left translated weekly cycle. It should peak before week 8 before rolling over into a yearly cycle decline.

Now Joe commented today,
“Yes-wanted to comment on the US$ and commodities too. I think the esteemed blog author has been too biased in favor of commodities / gold and against the US$ for a while. In reality, the move was in the opposite direction since 2011. I think it is safe to assume the commodity bull market ended then and we are looking at the typical ~19 years of a booming economy and stable to down commodity prices, as last 1982-2000 or 1947-1968. The correlation between stocks and commodities that held for the entire commodity bull market 1999-2011 has been broken since:
http://www.thereformedbroker.com/2013/05/14/chart-o-the-day-the-stocks-commodities-disconnect/'”

Yes I tend to focus on the dollar as it relates to commodities and gold.

One of my central themes is that the dollar is in a long-term bear market.

So I would like to review that today. Let’s begin by looking at over 40 years on the dollar chart.

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What we notice immediately are the peaks in 1985 and 2002.

Upon closer examination, we see that the dollar has definable cycles.
The biggest cycle is what I term the 15 year super cycle.

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Each super cycle is defined by a 15 year low on either side along with a cycle peak.
The 15 year lows are the lowest points in the 15 year cycle.

Embedded with in each 15 year super cycle are 5 three year cycles.

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Free Image Hosting at www.ImageShack.us

In both super cycles the first two 3 year cycles and at least part of the third 3 year cycle were very bullish as the super cycle rallied into its 15 year cycle peak.

The first 15 year super cycle peaked after 74 months and sold off for 92 months.
The Second 15 year super cycle peaked after 104 months and sold off for 86 months.

Please notice below that the embedded three year cycles formed higher 3 year cycle highs and higher 3 year cycle lows until the 15 year cycle peaked. Then the embedded three year cycles formed lower 3 year cycle highs and lower 3 year cycle lows into the 15 year cycle low.

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The most recent super cycle low printed in 2008. As you can see in the first two super cycles, the first 70 – 100 months of the super cycle is wildly bullish as the dollar continues to make higher 3 year cycle highs.

That has not happened since the dollar printed its most recent super cycle low in 2008.

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In the above chart the dollar printed higher 3 year cycle highs as it rallied out of the 1992 super cycle low. After that super cycle peaked in 2001, the dollar printed lower highs.

However, since the dollar has emerged from the 2008 super cycle low the dollar has failed to print a higher 3 year cycle high. The dollar went through the 2008 – 2011 three year cycle and printed lower highs. And here the dollar is currently in its second 3 year cycle of the super cycle and has yet to print a higher 3 year cycle high.

The dollar has been printing lower three year cycle highs since 2001. So until the dollar has broken its pattern of lower 3 year cycle highs, it hasn’t.

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A signal that the dollar will break its pattern of lower three year cycle highs will occur if the dollar breaks out of the multi year consolidation shown above.

Tying this back to commodities, I am tracking the CRB.

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The CRB has yet to confirm that it emerged from its yearly cycle low. Breaking above the declining blue trend line would do so. Breaking above the declining black trend line ushers in an inflationary period. Consequently, breaking below 267.97 confirms a deflationary period.

I still believe that it comes back to the dollar. If the CRB manages to hold above the 267.97 level and the dollar rolls over into its yearly cycle decline,then the inflationary scenario becomes quite likely …

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Dollar Dilemma …

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Today’s upside surprise on the dollar signals that May 1st marks the daily cycle low making today day six of a new daily cycle.

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At the time we considered that May 1st marked a daily cycle low. However, part of our thinking was it really was too early for a DCL. Yesterday’s breakdown fit our expectation of the dollar continuing into an intermediate cycle decline.

I pointed out earlier that contra-trend rallies normally do not extend past 4 days once the cycle is in decline. So today’s reversal signals a new daily cycle.

However, our expectation of a continued dollar sell off was well reasoned. There are 59 daily cycles between the March 2008 Super Cycle Low and the September 2008 Yearly Cycle Low. Of those daily cycles, only 4 of them printed a daily cycle 11 days or less. So there was over a 93% likelihood of a continued dollar decline.

So the next thing to determine is if this is the fourth daily cycle of the intermediate cycle or does this mark a new weekly cycle?

Well as you can see on the above daily chart a break above 83.19 forms a higher high, thus breaking the pattern of lower highs.

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This is either week 14 of the weekly cycle or week 1 of a new intermediate cycle. Thanks to the dollar surge today, the dollar has formed a weekly swing low off the week 13 candle. As we just discussed, a break above 83.19 forms a higher high. It would also see the dollar break above the declining weekly cycle trend line confirming a new weekly cycle.

Of the 78 intermediate cycles studied between 1978 and 2008 only 10 printed an intermediate cycle low at 13 weeks or less. Which is only 12% possibility. However if this is a new intermediate cycle, that would extend the yearly cycle.

If this is the last daily cycle we can expect it to peak on or before day 8. Then print a daily and intermediate cycle low in about 4 – 5 weeks which takes us out into June.

If this is a new intermediate cycle that could extend the yearly cycle out to September. Also, if this is a new intermediate cycle we can expect it to form as a left translated weekly cycle as it declines into its yearly cycle low.

pk34145 was interested in comparing the dollar to the EURO so lets take a look.

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The EURO shows a trend line break on day 11 signaling a daily cycle decline. With a day 5 peak, this could turn out to be a left translated daily cycle.

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If the EURO daily cycle fails, that would signal the the weekly EURO cycle is in decline. With a week 4 peak and currently on week 5, that could mean another 10 – 15 weeks of a declining EURO.

So there are some different scenarios to consider.
Whether or not the dollar is rejected by the 83.19 level will determine which way we go …

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The Yen is Toast …

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Below is a 42 year monthly chart of the Japanese Yen.

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You will notice right away the parabolic spike in 1995, the rally to new highs in 2012 and the historic collapse that is currently in progress.
Below I will add some observations

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The Yen appears to follow an eight year pattern of printing a multi year low:

* Beginning in 12/75 the Yen rallied 77% to its cycle peak in 1978 and then printed its cycle low in 10/1/82, a 7 year cycle.

* Then in 1982 the Yen rallied 131.6 to its next cycle peak 1988 and then printed its cycle low in 4/1990, an 8 year cycle.

* The next rally out of the 1990 cycle low ran 99.18% peaking in 1995 and then printed its cycle low in in 8/1998, an 8 year cycle.

*The 1998 – 2007 was a 9 year cycle that involved a multi year triangle consolidation featuring lower highs and higher lows. In this cycle the cycle low is not the lowest point following the cycle peak but the lowest point in the apex.

* The current cycle began in June of 2006 rallied for 64% and peaked in October of 2001.

So the Yen (obviously) is caught in the grip of its 8 year cycle decline. These 8 year cycles have ranged from 7 to 9 years. The previous 8 year cycle did run 9 years. We could see the cycles balance out with a 7 year cycle.

Now lets break this down on a yearly cycle basis.

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So the JPY is in an 8 year cycle decline and is 13 months into its current yearly cycle. Past performance certainly suggests a yearly cycle low to print in April or May.

Now let’s compare the JPY to the Dollar:

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Two things pop out to me.
1) Generally the JPY and the dollar trade inversely.
2) For such a fierce sell off currently on the JPY, the dollar is managing only a marginal rally.

OK, so now we will turn our attention to the dollar.

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April is month 7 for the yearly dollar cycle and month 23 for the current three year cycle. Most yearly cycles are comprised of 2 intermediate cycles. The dollar is currently in the second intermediate cycle for the current yearly cycle. Therefore, the dollar may very well be seeking out its intermediate cycle low as well as its yearly cycle low.

If a yearly cycle low forms in the next couple of months, that would take the yearly cycle out to either May or June which brings the three year cycle count either month 24 or 25. That means we will likely see one more yearly cycle unfold for the dollar setting up a three year low for the dollar sometime in 2014.

So the dollar may be on the cusp of a yearly cycle decline. If it breaks below the previous yearly low from September, then the dollar would deliver a failed yearly cycle. A failed yearly cycle would put the previous three year cycle low in jeopardy. And if the dollar breaks below the previous three year low that would put the 15 year super cycle in jeopardy.

So let’s take a look at the previous two 15 year dollar super cycles.

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You will notice that as both super cycles are embedded with five 3 year cycles. The first 3 embedded three year cycles of previous 2 dollar super cycles were wildly bullish for the dollar. As the dollar rallies into its 15 cycle year peak, each embedded three year cycle prints a higher three year high.

Below we are going to look at the second half of the previous 15 year super cycle and the current super cycle.

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Now notice above instead of a wildly bullish period for the dollar, since the 2008 super cycle low the dollar has continued a patterned of lower highs, even after printing a 15 year super cycle low.

The point is that the Japanese have been debasing their currency for sometime now. But now that the 8 year cycle peaked and the Yen is in a 8 year cycle decline, the chickens have come home to roost.

Ben has been printing money at an unprecedented rate, currently 85B per month. The Yen crashing into its 8 year low may be the blueprint the dollar will follow as its seeks out its three year low …

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Worlds Apart …

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I want to discuss the Euro but to do so I want to frame it with the background of the dollar. The USD Index measures the performance of the US Dollar against a basket of currencies:

Euro (EUR)
Yen (JPY)
Pound (GBP)
Canadian dollar (CAD)
Krona (SEK)
Franc (CHF)
Of the 6 the Euro is weighted at 57.6% so consequently the Euro/USD tends to have an inverse relation.

Let’s begin by looking at over 40 years on the dollar chart.

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What we notice immediately the peaks in 1985 and 2002.

Upon closer examination, we see that the dollar has definable cycles.
The biggest cycle is what I term the 15 year super cycle.

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Each super cycle is defined by a 15 year low on either side along with a cycle peak.
The 15 year lows are the lowest points in the 15 year cycle.

Embedded with in each 15 year super cycle are 5 three year cycles.

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In both super cycles the first two 3 year cycles and at least part of the third 3 year cycle were very bullish as the super cycle rallied into its 15 year cycle peak.

The first 15 year super cycle peaked after 74 months and sold off for 92 months.
The Second 15 year super cycle peaked after 104 months and sold off for 86 months.

Please notice below that the embedded three year cycles formed higher highs and higher lows until the 15 year cycle peak.
Then the embedded three year cycles formed lower highs and lower lows into the 15 year cycle low.

Now let’s turn our attention to the Euro

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Again we notice some major peaks and lows.

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And just like the dollar, the Euro can be defined by a 15 year super cycle …

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… which is can be further be subdivided into five – 3 year cycles

And if you divide the 188 month super cycle by the embedded five cycles you find that they average 37.6 months — a three year cycle.

So on to the current super cycle.

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We can see that the Euro’s 15 year super cycle peaked in the second 3 year cycle and is in decline. The Euro is on month 9 of the fifth 3 year cycle of the current 15 year super cycle. It is worth noting that while the first 3 year cycle ran 61 months, the average of the first four 3 year cycles is 35.25 months.

You will notice on both dollar super cycles and the previous Euro super cycle that once the super cycle peaks, the remaining 3 year cycles are characterized by lower three year cycle highs and lower three year cycle lows.

That is not happening with the current Euro super cycle.

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Instead of printing lower lows to accompany the lower highs, the Euro appears to be in a multi year triangle consolidation.

Now I want to jump back to the dollar here. The dollar just printed a failed daily cycle. The failed daily cycle is significant because it heralds an intermediate cycle decline.

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The weekly cycle peaked on week 9 and formed a swing high last week, week 10. The remaining daily cycles should now form as left translated cycles until the intermediate cycle low. With a timing band of 18 – 22 weeks we should see at least one more failed daily cycle after the current one prints a daily cycle low.

This is the second intermediate cycle of the current yearly cycle. Yearly cycles are typically comprised of two intermediate cycles. This suggests that not only are we expecting that an intermediate cycle decline has begun, but an yearly cycle decline as well.

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So this is month 7 of the current yearly cycle. With an intermediate timing band of 18 – 22 weeks, that leaves 8 to 12 weeks for the dollar to find its weekly low. Which is 2 to 3 months. That would bring the yearly cycle out to months 9 or 10, which is right in the timing band for a yearly cycle low. Of 33 yearly yearly cycles that I have studied between 1978 and 2012 about 70 % print a low between months 8 & 14. And 45% of the yearly cycles studied printed a yearly low between months 8 & 11.

That will bring the the three year cycle out to month 25 or 26, which is too early for a three year low. The chances are that we will then see a left translated yearly cycle unfold leading into a three year low in 2014.

As we noted above, the Euro is in month 9 of the fifth — 3 year cycle. The fifth 3 year cycle is the final 3 year cycle of the 15 year super cycle. Final 3 year cycles are typically left translated cycles that plunge into a 15 year super cycle low. Instead this fifth 3 year cycle for the Euro appears to be in a consolidation pattern. Here is a possible scenario to consider …

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The dollar is poised to travel down into its yearly cycle low. The move lower by the dollar will likely result with the Euro testing the upper triangle stem (a). As the dollar emerges from its yearly cycle low that will send the Euro lower (b), maybe to the bottom stem. I believe that the next yearly cycle for the dollar to be a left translated yearly cycle that will end in a three year cycle low. That plunge into a three year low could result with the Euro resolving its multi-year consolidation with a bullish break out.

A bullish breakout from the multi-year consolidation may shorten the final three year Euro cycle and actually begin a new three year cycle of a new 15 year super cycle. And the first 3 year cycles of new super cycles tend to be very bullish. Which will tip the Euro/Dollar in favor of the Euro …

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Dollar Primer

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I have been meaning to review the big picture for the dollar.

Let’s begin by looking at over 40 years on the dollar chart.

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What we notice immediately are the peaks in 1985 and 2002.

Upon closer examination, we see that the dollar has definable cycles.
The biggest cycle is what I term the 15 year super cycle.

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Each super cycle is defined by a 15 year low on either side along with a cycle peak.
The 15 year lows are the lowest points in the 15 year cycle.

Embedded with in each 15 year super cycle are 5 three year cycles.

Free Image Hosting at www.ImageShack.us
Free Image Hosting at www.ImageShack.us

In both super cycles the first two 3 year cycles and at least part of the third 3 year cycle were very bullish as the super cycle rallied into its 15 year cycle peak.

The first 15 year super cycle peaked after 74 months and sold off for 92 months.
The Second 15 year super cycle peaked after 104 months and sold off for 86 months.

Please notice below that the embedded three year cycles formed higher highs and higher lows until the 15 year cycle peak.
Then the embedded three year cycles formed lower highs and lower lows into the 15 year cycle low.

Free Image Hosting at www.ImageShack.us

Free Image Hosting at www.ImageShack.us

The first 70 – 100 months of the super cycle is wildly bullish as the dollar continues to make higher 3 year cycle highs, with the first 3 year cycle in the new super cycle printing a higher 3 three year high over the concluding super cycle 3 year cycle.

That is not happening in the current super cycle.

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The last 15 year super cycle low printed in March 2008.

As the dollar rallied out of the March 2008 super cycle low Bernanke dropped the hammer on the dollar in the form of QE1 in March 2009 and once again in the form of QE 2 in June 2010.

The first three year cycle of the previous super cycles printed a higher three year highs
The dollar is currently 56 months in the new super cycle and the dollar has failed to print a higher 3 year cycle high so far.

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The current yearly cycle is in decline.
The dollar is right up against the declining yearly cycle trend line.
A rejection by the declining trend line will likely send the dollar into a failed yearly cycle.
A break below 78.09 confirms a failed yearly cycle.

The current intermediate cycle on week 8.

The average intermediate dollar cycle runs about 20 weeks.

If the current weekly cycle runs its normal course, that will take the dollar out about three more months — to about February.

That is when I expect the current yearly cycle to print its yearly low.

With gold Looking to print week one of a new intermediate cycle this week, a twelve week rally would take it to about February …

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