Bill Baruch, president and founder of Blue Line Futures, reviews and previews the euro, Japanese yen...
10/16/2015 9:00 am EST
Though he feels there will still be a few weeks of upside in currencies (other than the USD) and in commodities, David Petch, of SafeHaven.com, thought it might still be a good idea to offer further in-depth technical analysis, since, as he puts it, "...when a top is put in place, one will want to make sure they are sitting on a chair, because it will get ugly."
I thought I would do a deeper dive to revisit the currencies and US dollar again, because there are a lot of comments out in cyberspace and the general media about how things are not that bad. The US stock market is having a massive short-covering rally, which is merely a mechanical knee-jerk reaction to an oversold condition. As I mentioned last week, there is still going to be another two-to-three weeks of upside in the other currencies and commodities, but when a top is put in place, one will want to make sure they are sitting on a chair, because it will get ugly.
The daily chart of the Canadian Dollar Index is shown below, with the lower 21 MA Bollinger band beneath the 34 and 55 MA Bollinger bands in close proximity to each other indicates an oversold condition has been generated (a mild overbought condition has been generated, but two Bollinger bands under the 21 MA Bollinger band trumps the other). Full stochastics 1, 2, and 3 are shown below in order of descent, with the %K above the %D in all three instances. Extrapolation of the %K in stochastics 2 and 3 suggest another three-to-five weeks of sideways to upward price action before a top is put in place. The likely area for topping out remains between 79 and 80...anything higher would be extremely short lived and make the next leg down that much harder.
The daily chart of the Australian Dollar Index is shown below, with the upper 21 MA Bollinger band above the 34 MA Bollinger band indicates an overbought condition has been generated. Also, a price excursion above the upper 21 and 34 MA Bollinger bands suggests a pause in price is likely over the next two-to-four days before any upside move occurs. Full stochastics 1, 2, and 3 are shown below in order of descent, with the %K above the %D in all three instances. The Aussie dollar has risen 5 cents over the past month, so at the upside is limited to 76-78. There is a little more of a broader range for a top compared to the Canadian dollar. There is the potential for another two-to-three weeks of upside before any sort of a top is put in place.
The daily chart of the Euro Index is shown below, with Bollinger bands in their proper order of alignment indicates no overbought or oversold conditions exist at this point in time. There is currently a quadruple top in place, at 114, so a breakout above 114.5 on a weekly basis could see a move to 120. Full stochastics 1, 2, and 3 are shown below in order of descent, with the %K above the %D in 1 and 3 and beneath the %D in 2. Extrapolation of the %K trend in stochastic 1 suggests two-to-three weeks of continued sideways to upward price action before any sort of a top is put in place. As with many commodities, there was a strong surge last week, so expectations of another two-to-three days at a minimum of sideways price action before another move higher should be considered.
NEXT PAGE: The Daily, Weekly and Monthly Charts of the US Dollar Index|pagebreak|
US Dollar Index
The daily chart of the US Dollar Index is shown below, with lower 21 and 34 MA Bollinger bands in close proximity to each other with declining stochastics suggests further weakness in the US dollar. Full stochastics 1, 2, and 3 are shown below in order of descent, with the %K beneath the %D in 1 and 3 and above the %D in 2. All of 2015 represents a huge sideways consolidation after the impulsive move that was put in place very early on this year. There is reasonable support between 93.5 and 94.0, so downside at this point in time appears restricted. With significant market weakness expected after rallying in the broad stock market indices occur, expect the decline to strengthen the US dollar as liquidation ensues.
The weekly chart of the US Dollar Index is shown below, with the lower 55 MA Bollinger band continuing to rise towards the sideways price action, suggests that at some point within the next two-to-three months enough of a reduction in space between the two bands will represent enough of a reduction in volatility to trigger the next leg up. Full stochastics 1, 2, and 3 are shown below in order of descent, with the %K marginally above the %D in 1 and beneath the %D in 2 and 3. The %K in stochastic 2 is still declining, with the price drifting sideways further supports the US dollar continuing to drift sideways for up to two-to-three months before the next sharp move up commences.
The monthly chart of the US Dollar Index is shown below, with the upper 21 MA Bollinger band above the 34 and 55 MA Bollinger bands suggests a very overbought condition remains in effect. Because of this one observation, it is entirely possible for the US dollar to continue trading within a very narrow range for another two-to-three months before breaking higher.
There is a huge gap between the lower and upper 55 MA Bollinger bands, but if one looks back to 1998 to 2002, a very similar pattern was developing. As such, the US dollar is not likely to hit a major high for at least two-to-four years from now. Full stochastics 1, 2, and 3 are shown below in order of descent, with the %K above the %D in all three instances. The stochastic setup closely resembles the 1998 to 2002 time frame, so it remains conclusive that another two-to-three, maybe four months of continued sideways to downward price action continues before sharply reversing to the upside. As I have been stressing for the past year, the US dollar is going to have far more strength than most expect and the coming move will pull even more surprises. Continue to be prudent with investments...the US dollar longer-term continues to be the safest investment.
NEXT PAGE: Why You Should Proceed with Caution|pagebreak|
The short-term Elliott Wave count of the US Dollar Index is shown below, with wave A completing in November of 2014 as an impulsive pattern. The entire move from November until present is thought to be a part of a running correction pattern. At present, wave Y is either completing a triangle or is a double correction, with its final structure being a triangle. A longer-term alternative correction would be the ABC move of Y being an elongated flat representing one segment of the 5 legged corrective structure. If this pattern were to be valid, then each subsequent move must take at least two months. This would put the earliest date of completion into February 2016, with the latest being around June 2016. I am leaning towards either of the first two scenarios, with another two-to-three months of sideways price action before moving higher. Since wave A was impulsive and wave B appears to be a running correction, wave C should be at least 1.618 times the height of wave A, or 13 cents. Wherever the US dollar bases at the end of this corrective pattern, slap 13 cents to the upside and that represents the minimum upside price objective.
The mid-term Elliott Wave count of the US Dollar Index is shown below, with wave B thought to still be forming. When wave E completed in July 2014, it marked the end of a longer-term correction in the US dollar and the start of a new bull market. Although the move up in the US dollar exceeded above wave A, it is important to note that the lower degree structure is purely impulsive above wave A. Implications for this requires wave C to also be impulsive in nature once wave B is complete, which—as discussed earlier—is probably two-to-three months from now. The consolidation phase of the US dollar should be expected, based upon a net upward move of 21 cents within a nine month period. One thing is for certain...there is at least one more leg higher in the US dollar which will either complete the upward trend or merely be a pause for another move higher. My thoughts are the US dollar puts in a high between April and June 2016, followed by a 12-18 month correction before moving yet higher as it creates an ongoing currency crisis. Based upon this scenario, a top in the US Dollar Index occurs sometime between 2019 and 2021...I leave a window as I do not want to close it and lock into a date that cannot be foreseen...the trend however, should evolve as described. The present sideways price action in the US dollar can be viewed as a bull flag, which still requires another two-to-three months of time before completion. Everything is moving under their own accord these days, so I am not even going to try and seek correlations between markets, because they can disappear as quickly as they were discovered. A weaker US dollar has raised the price of oil and other commodities, which will weaken profitability of some mining companies...not much of a difference between $40 or $50 USD oil, but at the margin it can mean a lot. Be careful out there because these markets are extremely volatile.
By David Petch, Contributor, SafeHaven.com
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