When it comes to the U.S. dollar, too often, the "cycle" goes something like this:
Step #1. In the financial news, the conflicting stories typically fall into one of two categories:
- Those that argue that inflation and debt mean the dollar is doomed to decline
- Those that argue that the Fed will ultimately have to raise interest rates and that higher rates will make the U.S. dollar more attractive relative to other currencies, thus the dollar is destined to rise
Step #2. The average investor weighs these two conflicting theories and decides which they feel is the better argument.
For better or worse, I prefer to look at things I can quantify.
The chart below (courtesy of ProfitSource) displays the U.S. Dollar Index along with its 52-week exponential moving average.
In general, if the U.S. dollar is above its 52-week EMA and above support/resistance near 88.80, this is favorable for the dollar.
The dollar has tended to move in four-year swings. Once again, we are not talking about picking tops and bottoms with uncanny accuracy. We are merely trying to gain an edge by paying attention to long-term cycles.
With those caveats in mind, the chart below displays the cumulative % price performance for the U.S. dollar ONLY during those times since 1969 when the dollar was below its 52-week EMA and it was within the 4-year "unfavorable" portion of the 8-year cycle.
It is always possible that the cycle will prove the exception to the rule and that the U.S. dollar may advance significantly. The important thing to note is that it will have to swim upstream of these historical trends to do so.
What else we're looking at
- More details on the dollar's trend, cycles, and upcoming seasonal window
- An update on absolute and relative trends in industry, sector, and country ETFs
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The post titled A Dollar Trend to Watch was originally published as on SentimenTrader.com on 2021-09-08.
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