To help get correct orientation and the general direction of the market together with the extent of the move, I am using a correlation chart of Crude Oil (TOP), Exonn Mobil (MIDDLE) and Dollar Index BOTTOM). There are many features on this chart which I will cover in more detail in the future. For now the most essential aspect is to note that the Oil (denominated in USD) is inversely related to Dollar Index with (NOT FIXED) but high correlation. Likewise the Exonn Mobile, which I use to help clarify or help in gaining insight in to which direction the market is to take over the period under consideration. After the major sell off in 2008 in both Oil & Exonn Mobile (with Dollar Index making corresponding sharp in the opposite direction), both the Oil and in particular the Exonn Mobile have continue to make progress to the upside. The Exonn Mobile appears to be in a process of forming a rising wedge with waves “a,b and c” complete and is retracing to the downside in wave “d”. On completion the Exonn Mobile will bounce to complete wave “e” and hence the rising wedge which would be Ending Diagonal marking major “TOP” from which it will decline significantly. In corresponding way the Oil appears to be in sideway congestion in possible minor wave ”b” which should resolve to the upside also to complete the retracement of the decline in 2008 (with top forming at the similar time as the Exonn Mobile) and revert to downside along with the Exonn Mobile with Oil potentially retesting the 2008 low or even making lower low. If this analysis of Oil & Exonn Mobile is correct then, Dollar Index during the same period will move broadly in opposite direction. Namely whilst Exonn Mobile is declining to complete wave “d” the Dollar Index is moving up and could form a top around 82.5 – 83 area or could even move to 84 before forming major top from which it will then decline to retest all time low or make new low in the region of 68 -66 (see another chart below of just the Dollar Index for the target noted) over the next 12 -18 months. Should this takes place, then it would result in many USD denominated assets making their last major move up or trade in a range at the higher end of the congestion. Also I have by visual inspection picked vertical red lines on the where a swing made high or low on ether the Oil, Exonn Mobile or Dollar Index and was surprised to note that around 100 -105 daily bars interval between each. If we have the repeat of similar length cycle then by inference we could be expecting the low in Dollar Index around Mid 2014. Many major tops and bottoms in the Dollar Index are noted in March to July period or October to December period. Therefore, I suspect that when the Dollar Index forms the Major Bottom in 2014, Equity Market and most Dollar denominated Assets will peak and will revert in Multi -Decade decline with Dollar moving up to level that would make you sound silly or insane namely 100 or even higher 120 -140 region over the periods of possible 15 – 20 years or so. For more details of this please see next chart.
Dollar Index appear to have been in general decline over many years. Based on US RPI ir would appear that US Dollar has lost over 90% of it Value in say 1910. So for the purpose of our analysis we could see that the low in 1980 could be possible larger degree (III) and the sharp bounce is likely to be wave(IV). The sharp retracement to the upside is common for wave (IV) if the wave (II) was more sideway . Anyway if the high in 1985 marks the top of wave (IV) then you can see we are towards the end of 5 wave cycle with the current congestion since the low in 2008 being potential wave 4. The potential top in the Dollar Index which I mentioned earlier that could soon take place around 82.5 – 83.0 or 84.0 would complete the wave 4. Then a final wave 5 could commence to the downside with possible target in the region of 66-68 or little higher in the case of truncated wave 5. This wave 5 will have minor 5 waves within it and will be quite dynamic compared with the sideway congestion we have experienced over the last few year. Also this last wave (V) which commenced from high in 1985 seems to be in potential falling wedge, is Ending Diagonal giving further weight to my view that we will decline to retest the low of 2008 and possible make new low with 66-68 on the card if price does not bounce till finding support the declining trendline connection the major bottoms. As we don’t have the Dollar Index Data going bqcl all the way to say 1900, based on EW theory, the retracement on completion of wave (v) could retrace back to (IV) which would mean potentially 1985 high around 160 area. What would cause these major swings and what it will mean for global economy is beyond the scope of this article but anticipate upheavals of the magnitude and duration that would leave us numb and lost for words.
The EURUSD which has around 60% representation in the Dollar Index and CHF (pegged to the EUR) further 10% or so would mean that between then they represent over 70% of the index. Consequently it is not hard to see why with Dollar Index testing 2008 low or make new lower low, why EURUSD could potentially at least retest the 2008 High somehow, regardless of whether is is deserving to EUROZONE Economies justifying such high EUR value. In conclusion, as I mentioned at the out set if my analysis is wrong, it will be wrong in spectacular way and I will review on development of future price action and at the point which I will consider invalidate my analysis. In the me I accept that I will be in the very small minority with this view, specially when major banks and even the EW International calling EUR to below 1.20 perhaps even parity. At least now you know my view of why I am at present very optimistic on EURUSD. I would welcome your constructive views and comments.