I believe that one of the reasons we saw such a strong bull market from 2020-present is because the dollar pulled back and this lent strength to asset movements.
Dollar strength movements, tend to amplify or suppress the strength of a move equating to a momentum modifier for the markets.
We can see here how the DXY pullback amplified the strength of the post-COVID stock market rally. Saving the economy + the markets from what would otherwise have been a far worse crisis.
DXY pulled back because international trade and international debt collections were put into a deep freeze during the global COVID response which was dominated by lockdowns. This translated into deferred demand for dollars, hence we had a DXY correction downwards from 103 to 89 within the space of a year.
Because the economy has woken back up, and debt collections and international trade and so forth are waking back up, the dollar has made a huge comeback throughout 2021 and this can be seen in the fact that it has undertaken an apparent 5 wave in which it has gained over 60% and this the final Wave 5 move has seriously weakened stocks and other asset prices.
Because I believe DXY has undertaken a full set of 5 waves, my mind has turned to the fact that DXY has embarked on an extended rally without much of a correction thus far.
In this image, we can see that MACD is hyperextended and so is RSI. More so than at any point during 2019 or the subsequent rally.
This combination of factors means that a dollar pullback is likely.
This means that assets will likely receive a reprieve in the coming weeks.
Because we have already seen a serious write-down on equities, in particular, we are likely to see a relatively strong recovery if the dollar does pull back as I expect.
I believe this will give us the final penultimate rally in the bull market.
Again, this reprieve will be temporary.
There is evidence that the S&P500 is showing signs of a dot-com-style Diamond Reversal. However, this TA lacks a final peak and test of the upside resistance which is necessary to complete the form.
As such, the rally I'm forecasting on the S&P will complete the diamond reversal and I am looking to a crisis which will occur around August or September this year.
Once DXY finishes its ABC corrective move, I believe that the dollar will not only set a higher low, but also embark on another rally which will be the trigger for a crisis.
I am looking for DXY to level out at 93 on the 0.23 Fibonacci from its current level.
This would set a higher low and set the stage for the final penultimate down move on the S&P500 and the broader market.
The true crisis will take place between September 2022 and March 2023 as the dollar completes its correction and reasserts itself.
The forthcoming FED action will be the catalyst for this because the FED knows they have no choice but to crash the markets to get rid of inflation and the dollar rally is really just a side-effect of FED policy upon the global system (and liquidity in particular).
If the dollar does pull back, then inflation is likely to stay relatively strong in the coming months, but this will just force the FED to take even harder stances upon inflation.
This means further interest rate rises and tapering will be baked-in which will just amplify the power of the dollar's subsequent bull run.
This is where equities will enter a de-facto bear market.
To summarise:
Dollar strength movements, tend to amplify or suppress the strength of a move equating to a momentum modifier for the markets.
We can see here how the DXY pullback amplified the strength of the post-COVID stock market rally. Saving the economy + the markets from what would otherwise have been a far worse crisis.
DXY pulled back because international trade and international debt collections were put into a deep freeze during the global COVID response which was dominated by lockdowns. This translated into deferred demand for dollars, hence we had a DXY correction downwards from 103 to 89 within the space of a year.
Because the economy has woken back up, and debt collections and international trade and so forth are waking back up, the dollar has made a huge comeback throughout 2021 and this can be seen in the fact that it has undertaken an apparent 5 wave in which it has gained over 60% and this the final Wave 5 move has seriously weakened stocks and other asset prices.
Because I believe DXY has undertaken a full set of 5 waves, my mind has turned to the fact that DXY has embarked on an extended rally without much of a correction thus far.
In this image, we can see that MACD is hyperextended and so is RSI. More so than at any point during 2019 or the subsequent rally.
This combination of factors means that a dollar pullback is likely.
This means that assets will likely receive a reprieve in the coming weeks.
Because we have already seen a serious write-down on equities, in particular, we are likely to see a relatively strong recovery if the dollar does pull back as I expect.
I believe this will give us the final penultimate rally in the bull market.
Again, this reprieve will be temporary.
There is evidence that the S&P500 is showing signs of a dot-com-style Diamond Reversal. However, this TA lacks a final peak and test of the upside resistance which is necessary to complete the form.
As such, the rally I'm forecasting on the S&P will complete the diamond reversal and I am looking to a crisis which will occur around August or September this year.
Once DXY finishes its ABC corrective move, I believe that the dollar will not only set a higher low, but also embark on another rally which will be the trigger for a crisis.
I am looking for DXY to level out at 93 on the 0.23 Fibonacci from its current level.
This would set a higher low and set the stage for the final penultimate down move on the S&P500 and the broader market.
The true crisis will take place between September 2022 and March 2023 as the dollar completes its correction and reasserts itself.
The forthcoming FED action will be the catalyst for this because the FED knows they have no choice but to crash the markets to get rid of inflation and the dollar rally is really just a side-effect of FED policy upon the global system (and liquidity in particular).
If the dollar does pull back, then inflation is likely to stay relatively strong in the coming months, but this will just force the FED to take even harder stances upon inflation.
This means further interest rate rises and tapering will be baked-in which will just amplify the power of the dollar's subsequent bull run.
This is where equities will enter a de-facto bear market.
To summarise:
- The US Dollar will pull back from its highs in the coming months.
- This will grant some a temporary reprieve to stocks and assist in a temporary assets rally.
- The dollar should bottom around 93 later this year as per the Fibonacci outline. This has the potential to also form a cup-and-handle shape.
- The dollar will enter a new bull run after this point which, alongside an aggressive FED, will mean assets again enter into a bear market.
- The dollar will peak around October 2023 at its next Fibonacci time zone and this should represent peak bearishness for assets.
