US Dollar Index (Yearly Chart)- $DXYUS Dollar Index (Yearly Chart)- TVC:DXY
The chart reveals a clear historic time pattern of c.6 years of bear price action followed by 10 to 12 years of bullish price action for the Dollar.
The Chart
o Each bear cycle ends with a double bottom which forms over a 4 to 6 month period. The double bottoms are marked 1 and 2 in blue on the chart.
o If we assume the top is in for 2022, each top has taken 10 – 14 years to reach and need to hit or exceed the upper resistance line.
o Price can oscillate near or above the upper boundary of the resistance line for a period of 3 years. At present we hit this resistance line in 2022 and thus arguably could remain elevated here for a further 1.5 years. Whilst this is a potential outcome, I do not see it as likely for reasons outlined below.
Why I’m Bearish on the dollar:
o We are presently in year 14 of positive price action. Based on historic price action this is an over extended bullish time period thus leading me to believe it is near its end or at its end.
o Price hit the upper resistance line and was definitively rejected from it in 2022.
o The price candle in 2023 is showing a spinning Doji candle which typically means indecision or a turning point (unlike the candle post the “oval area” marked in 2000 which was followed by a large green candle). This could change by the end of the year though and keeping an eye on this would help us confirm if the dollar is into a long term down trend.
o If we open 2024 and the 3 year moving average(Blue Line) has started to turn down I think this would be the nail in the coffin that the dollar has at least 3 years of continued downward price action thereafter.
o As you can see from the last two bearish periods the DXY declined 52% between 1985 – 1992 and then declined 42% between 2002 – 2008. Based on this reductive pattern I have in an continued the pattern projecting a 32% decline for the 2022 – 2028 period of which we have already declined 10% with a potential 22% to go down to $78.25.
Whilst I have included a projection here and in the chart, it is not a prediction. I am just using past price action as a guide and we only have two data windows as reference points so this is more guess than anything. At any stage the chart can either confirm or cancel this perspective. That’s the beauty of charting, we lean on what is more probable based on what the chart has done in the past and what it currently doing, continually challenging and updating our thesis, and letting price (or the market no matter how irrational) be the dictator of our trades.
It’s vital to recognise that we can revisit the top resistance line. It is possible, however the 6 month chart and the weekly chart seem to lean more bearish now and thus on a shorter timeframe I believe we will likely head lower. This can all change though as we are still 1.5 years into the 3 year topping window period. Technically, we could have a recession and the DXY could spike and then still head down and form a its 6 year low after. As more time passes everything will become more clear.
I will be following up this post with Monthly and Weekly charts so that we can monitor price and time action more closely. I have already completed a basic version of these which I will add in the comments below.
PUKA
