Sunday, November 13, 2011

DOLLAR TEETERING ON THE ABYSS

We all better hope I'm wrong on this one, but I think the CRB just put in its three year cycle low in October. I'm also afraid that Bernanke has done irreparable damage to the dollar. If I'm right about both of those assumptions then we are on the brink of a historic inflationary period.


I've marked the major three year cycle bottoms in both the CRB index and the dollar index on the chart below with blue arrows. (Actually the CRB cycle tends to run about two and half years on average).




The dollar is now a great risk of forming a left translated three year cycle. A break below the October 27 intraday low would initiate a pattern of lower lows and lower highs of an intermediate degree. When the intermediate cycles start to roll over that is usually a sign that a major cycle has topped. If the dollar's three year cycle has topped after only five months we will be at great risk of a severe currency crisis in the fall of 2014 when the next three year cycle low is due. Even more concerning is if the CRB cycle has bottomed. If it has then commodities are poised for a huge surge higher during the next two years as the dollar deteriorates.
 

The next couple of weeks are going to be critical for the dollar. Sometime in the next two weeks the dollar is going to drop down into its next daily cycle bottom. On average that cycle lasts about 20 to 25 days. Monday will be the 12th day of the cycle.The reversal last Thursday has the potential to mark the daily cycle top. If that top holds then the dollar is at great risk of moving below the October 27 intraday bottom sometime in the next two weeks as it moves down into its next daily cycle low.



The dollar must hold above the October 27 low. Failure to do so would indicate that the cancer has now infected the currency markets, most specifically the US dollar. A penetration of the October 27 low would indicate that the current intermediate cycle topped in only two weeks. That should potentially lead to another 15-20 weeks of generally lower prices on the dollar index with the next intermediate degree bottom due sometime in early to mid March.


If that scenario plays out we are almost certainly going to see the CRB break its down trend line confirming a major three year cycle bottom has been formed.



The extremely mild nature of the decline so far is a serious warning sign that QE1 and QE2 are going to eventually trigger massive commodity inflation.


At this point all we can do is hope that the three year cycle in the CRB will stretch slightly long and bottom early next year. If it fails to do so and the major three year cycle low did occur in October, then we have some serious inflation heading our way in the next two years.


More importantly to precious metal investors, if the dollars three year cycle has already topped then there is a very strong possibility that the next two years, as the dollar collapses down into its 2014 bottom, will drive the bubble phase in the gold bull market.

11 comments:

  1. Gary,

    Thank you for your insghts. If you are correct in your analysis, then I would also expect the Stock Market to rally hard as the dollar falls. It will be interesting to see how the European debt crisis affects the dollar, as (so far) it has been a "safe haven" from the Euro.

    Oh what a tangled web mankind has conceived.

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  3. I very much appreciate the technical savvy on this blog, but I have to disagree about the dollar in the near term.

    The dollar chart is a measure of its RELATIVE value, meaning in relation to other currencies. Thus, even though it may be declining on an absolute basis, the chart can still go UP. This is because other currencies are plummeting at a faster rate.

    having said that, it is well to note that so much press is going to Europe right now that no one is noticing the dire situation of the US. Eventually the spotlight will be shown here, and then the dollar may get its come-uppance. and that is why i remain very long both gold and silver.

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  4. According to Dallas Fed President and "inflation hawk" Richard Fischer, "The banking system is awash with liquidity . . .Domestic banks are flush; they have on deposit at the 12 Federal Reserve banks some $1.6 trillion in excess reserves, earning a mere 25 basis points―a quarter of 1 percent per annum―rather than earning significantly higher interest rates from making loans to operating businesses."

    With such gargantuan "leftover" reserves of cash from "QE's 1&2," what economic force could possibly exist that would cause the dollar to stand?

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  5. Well a massive economic collapse would do the trick, but from what I can see here in Vegas the economy doesn't appear to be doing that bad. Restaurants are busy, stores are full and the casino's are packed.

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  6. The trend is your friend....
    Buy the rumour...sell the fact...
    ??????
    Like Nike says...."Just do It"
    Nervous markets makes for plenty of opportunity if you know where the bull is at and where the bear is hiding.
    You gotta stay with the bull to reap the real rewards.
    You're on a good thing here G..stay with it... with conviction this time. Dont back down. No teeth anywhere to be seen and no megaphone to shoot down. Its full steam ahead. All aboard !!!!!!

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  7. Liquid -

    What are you smokin'? Whatever it is . . . it must be some good stuff!

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  8. Str8 Shoot.

    U R definitely on the wrong side of the ledger....perhaps too many shots ?
    But nothing another "shot" wont fix..huh!!!!!
    U listen to the Fed ..u gotta be zombified. Word of caution ..dont get personal...U gonna lose.
    If you need explanation ....
    Trend = Gold Bull + Currency debasement
    Rumour... of more money printing = Inflation & Gold Bull..
    Just do it....to those that havent yet.....BUY GOLD..in any form. (bull)..
    Inflation is the future.
    G is correct finally(albeit after several failed calls.. read last few posts).. in his current call if the dollar does not push up to the 79 level in next 2 weeks...ITS TOAST.
    But by all means ....feel free to act on what the FED says or thinks. They havent got a clue how to kickstart the economy or stabilise the currency. Sounds like you still dont have one either.

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  9. the dollar index has successfully closed above the daily 200ma. The SP500 has successfully closed below the daily 200ma. The monthly SP500 chart has retested the 10ma with MACD crossover. All macro indicators are screaming bearish equities and bullish dollar. we're simply in a period of murky transition.

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  10. Hey dufus liquid -

    I know it was lost on you because you are too busy being lost in your own importance and total cockiness, but Fischer was AGREEING that there is too much cash in the system and the dollar is being driven into oblivion. He is Bernanke's chief antagonist on the FMOC . . . oh . . .sorry . . . do you know what that is?

    Anyway . . . keep smokin' your whacky weed dude!

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