by Erik McCurdy
The index has been confined to a trading range between 75 and 88.50 on the weekly chart since late 2008, and a subsequent weekly close well below the lower boundary of the range at 75 would forecast a relatively quick return to the previous secular bear market low at 72. The breakdown of the symmetrical triangle formation on the monthly chart in March was a bearish signal that suggests the secular decline from 2002 is attempting to reassert itself.
A weak close in April would confirm the March breakdown and predict a return to the long-term low at 72 as well. However, cycle analysis indicates that an Intermediate-Term Cycle Low (ITCL) is imminent, so at least a brief oversold reaction or period of consolidation will likely develop before the secular decline moves appreciably lower. We are 22 weeks into the cycle following the last ITCL in November 2010 and the next low should form sometime during the next 3 weeks.
It will be important to monitor the character of the rally off of the forthcoming ITCL. A weak rebound or sideways consolidation followed by a quick return to recent lows would support the symmetrical triangle breakdown and forecast additional losses. Alternatively, a strong reaction that continues for more than 8 weeks would once again signal that long-term direction is in question.
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Erik McCurdy is the senior market technician for Prometheus Market Insight and has been analyzing charts every day for over 15 years. The software program that he developed to monitor long-term stock market trends has correctly predicted over 90% of the long-term turning points in the S&P 500 index since 1940. His Gold Currency Index has predicted every major trend change in the US gold market since its creation in 2005. The Prometheus Market Insight newsletter service provides daily, weekly and monthly forecasts for stocks, bonds, currencies, commodities and precious metals using proven computer models that base their predictions on technical and cycle analysis. Stay in touch: