We have done some extensive time cycle research on the currencies this year and have reported some of our findings in a recent post: https://caldaro.wordpress.com/2010/10/06/the-currency-time-cycle/. This is an update. The chart above displays the USD (DXY) movement since its major SC top in 1984. The decline from this top took the form of a double zigzag ending with a failed C wave low in 1995. We labeled that low Cycle wave [A]. An ABC counter rally followed into 2001. We labeled that Cycle wave [B]. Notice there were 17 years between the 1984 SC top and the 2001 Cycle wave [B] top. After the 2001 [B] wave top the USD started another double zigzag decline. Thus far we have a confirmed completion of only the ABC-X portion. We’re expecting a long term 17 year cycle low in 2012 with a completed pattern around the mid-60’s level.
The weekly chart provides a closeup view of the past several years with all the (trends) waves labeled. Notice we have tentatively labeled the 2009 low at 74.23 as Primary wave A and the 2010 high at 88.71 as Primary wave B as part of the second zigzag. The market will need to confirm these waves as we move into 2011/2012.
This month the USD has entered a confirmed uptrend after a couple of attempts during its recent five month downtrend. We labeled this low as Major wave A of the likely Primary wave C decline which started at the June 2010 high. We have also noted a band of overhead resistance for this uptrend between just under 84 and just under 87. The USD typically gets quite overbought on the weekly RSI during an uptrend. Then it ends it with a negative divergence. Currently it has just reached a slightly overbought level.
When the USD is in an uptrend it normally implies investors are becoming less risk oriented; i.e. scaling back on positions in equities, commodities, etc. While this is noteworthy, it is not necessarily a negative for these markets unless the USD moves sharply higher. Should the USD break through the lower band level, just under 84, then a correction in these other markets is nearly certain. Compare the price action in the USD to the SPX, using the weekly chart, to observe this relationship. Best to your trading!