US Dollar Bull Market: Targets Achieved and the Road Ahead
Aug 18, 2024
All our dollar targets have been hit, and this essay serves as a historical reflection to illustrate the immense power of mass psychology. When the crowd was convinced the dollar was dead and the euro was the future, we took a contrarian stance—and it paid off.
As the dollar builds momentum, it could challenge its previous highs and even soar beyond them. However, this time, we foresee a significant shift. Gold, precious metals, and select commodities are likely to rise alongside the dollar, effectively negating its usual suppressive effects. This is a direct result of the new era of global resource remobilization—a war not fought with weapons but with control over critical resources.
Lessons from History
In 2015, when many doubted the dollar’s resilience, we correctly predicted its resurgence. This essay isn’t just about past victories but also reminds us of the cyclical nature of markets and the pivotal role of learning from history. Those who understand these cycles can confidently navigate the markets, while those who ignore the past risk repeating the same mistakes.
The dollar may be poised for another bullish chapter, but the dynamics have evolved. As we look ahead, understanding the interplay between currencies, commodities, and global strategies will be more important than ever.
A Historical Look at Tactical Investor’s Market Insights:
Over the past few months, we have extensively discussed the US dollar’s trajectory. Here, we present excerpts from previous updates, focusing particularly on the market update from December 16th.
The dollar is currently testing a two-year support zone, and as long as it remains above this level every month, the outlook will stay bullish. Additionally, the dollar is forming a falling wedge pattern that is typically bullish. It continues to issue new positive divergence signals almost weekly. With a large short position in the dollar, a strong upward move could trigger a short squeeze, potentially leading to a domino effect. We observe that extreme movements are impacting nearly every asset class, and historically, such extremes often lead to solid counter-movements.
Signs of a Changing Outlook
For the outlook to shift, the dollar must trade within the 75.80-76.00 range for at least five consecutive days. If it achieves this, it could target the 80 mark. (Market update: Nov 24, 2009)
We’ve consistently stated that the dollar is poised for a turnaround, even as many predict its decline. While we agree with the long-term bearish outlook, we believe that the dollar will make one last significant move in the short to intermediate term. The dollar is a formidable entity that will not capitulate without a fight.
The Dollar’s Breakout from a Falling Wedge
This bullish pattern contrasts with the euro, breaking from a bearish rising wedge. A significant bullish indicator we believe many have missed is the action in the gold markets. Gold reached new highs as the dollar weakened.
In the past 24 months, the dollar has hit three significant lows, which we will list chronologically.
Something Unusual is Happening
Gold surpassed its 1980 high of approximately 850 several months ago. When gold traded past its March 17, 2008 high of 1014, the dollar should have tested its low from that day. However, despite gold trading past 1100 and then 1200, the dollar did not drop below 74.50, nor did it close below 75 on a monthly basis.
The Glaring Discrepancy
This is the most striking discrepancy we’ve noticed, yet it remains unaddressed. Gold enthusiasts and mainstream media rave about the rush into gold, even mentioning central bankers supposedly buying gold. However, weren’t these central bankers selling gold when it traded in the 300-700 range? They are likely buying gold to mislead the majority into believing gold will soar without correction. Printing more money costs them nothing.
Gold traded 21% above its March 17, 2008 high, reaching 1227 before pulling back. Logically, the dollar should have traded 3-5% lower than its March 17 low, but instead, it traded 4% higher. This data suggests the dollar is putting up a strong fight. Observe how quickly gold pulled back when the dollar rallied slightly. Imagine what could happen if the dollar trades to and possibly beyond the 80 mark.
Psychologically, nearly everyone believes the dollar is doomed, viewing commodities (especially gold) and competing currencies as the best alternatives. It’s estimated that nearly 99% of traders think the dollar is finished. Extremism in sentiment often leads to the opposite result, potentially a dollar rally. Once a contrarian investment, gold is now mainstream. Markets are forward-looking, and we believe the worst for the dollar is already priced in the short to intermediate term.
Conclusion
The dollar is universally despised, with sentiment at historic lows. Mass psychology suggests that when an investment is so widely loathed, it often stages a powerful rally. A strong dollar rally could hinder market rallies, trigger commodity sector pullbacks, and affect precious metals and bonds. The dollar’s fate will be crucial in determining market movements next year.
The dollar could confirm its strength by closing above 77.50 on a weekly basis or taking a two-stage approach: trading past 76.43 on a weekly basis and then above 77.50 for three consecutive days. The latter path is slightly more bullish, suggesting the dollar could trade past 82.00. Market Update: December 16, 2009
Every asset class has rallied in response to a weaker dollar, so a strong dollar rally could negatively impact the entire market. Individuals shouldn’t be complacent about the dollar’s decline, as they might overlook significant issues in their own regions. The EU’s challenges could boost the dollar beyond our targets. If investors become skittish about the Euro, it could trigger a rush to the exits. While we’re not predicting this, the large deficits of several EU members suggest potential trouble. Greece, in particular, could face severe consequences without swift action. (Market update: Jan 5, 2010)
Future Outlook
The pattern has shifted slightly, requiring the dollar to close above 78.50 on a weekly basis, which it did with ease, nearly reaching 80 before pulling back. A monthly close above 81 would be a strong bullish signal, potentially pushing the dollar to new highs around 90. The EU’s turmoil adds to the dollar’s strength, with France and Germany’s reluctance to help Greece revealing key insights from a mass psychology perspective.
If the EU’s situation worsens, Germany might consider exiting, ending the EU. While dramatic, nations are growing weary of assisting others while struggling themselves. We are witnessing several phases:
1. The “devalue or die” currency battle.
2. The “survival of the fittest” stage.
3. The protectionism era, with high import tariffs, especially from China.
We have daily and weekly buy signals for the dollar, maintaining a bullish outlook. Conversely, the Euro has weekly and daily sell signals, suggesting it could fall eventually trade on par with the dollar. If the dollar issues a monthly buy signal, it would indicate an extremely bullish outlook and a potential 7-9-month gold consolidation/correction, impacting the entire commodities sector. Current trends in copper and oil markets indicate potential broader sector weaknesses.
Remember, don’t focus solely on one aspect, but keep an eye on the broader picture.
There is genius in persistence. It conquers all opposition, instills confidence, and overcomes obstacles. Everyone believes in a determined individual. When they undertake a task, the battle is half won because their rule is to accomplish whatever they set out to do. — Orison Swett Marden (1850-1924)
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