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Sunday, November 28, 2004

The USD Trend Line

The USD's downward sloping trend line is steep, substantially below 45 degrees down from the horizontal. Some charts on a computer screen have sides that are a lot longer than their tops and bottoms. The scale of these charts would accentuate the steepness of a down trend line. So lets look at a squarish chart of the USD. Here's a 9 year chart:
http://futures.tradingcharts.com/chart/US/M
Still a pretty steep down trend. True, the dollar moved roughly sideways for 10 months this year before going lower. That would make the trend line not as steep. So the trend line needs to be adjusted upwards a bit to allow for the pause the dollar took. Still it looks steep. To draw a downward trend line, connect the highest high you can with the lowest high you can without any prices intersecting that line between those 2 points.

The dollar topped out in the middle of 2001. It almost made it back that high at the end of the 2001. So lets call about the end of 2001 the beginning of the USD's downtrend. For the next 2 years the dollar went from 121 to 85. That's a 30% drop in just 2 years for the world's main reserve "money" for central banks around the world. By the way, this is a drop relative to a group of or basket of other country's "monies". Seems like a lot for the world's *reserve* "money".

Well, it's been making a number of shoulders on the way down. The last pair of shoulders it made recently produced a neckline that calls technically for a lower target of about 50 for the USD, which would be a 59% drop from the top. This some how doesn't seem to cool for the world's reserve "money" to put it mildly. So I expect some big time rockn-n-rolln in the near future at least in the US. This should have an affect on many parts of the rest of the world, too.

How much further out in time till the dollar hits 50? Don't know. But one thing that can be done to get an estimate is to print out the chart and tape it to extra paper to be able to extend the horizontal lines to the right, and add more of them downward, and extend the vertical lines downward, and add more of them to the right. Then extend that trend line downward.

The extended trend line, if it doesn't get broken, says a little bit after the start of 2008, or a little over 3 years from now, or about 6 and 1/2 years for the dollar to go from 121 to 50, down 59%. The seat of my pants says it could happen a little sooner. Say roughly 60% in 6 years. Will the dollar still be the reserve "money" of the world by then?

Gold and silver move inversly to the dollar. And once this once in a generation bull market really heats up, sometimes a lot inversly. Since on Friday, the USD, for the first time, went below the 1995 low, making a new all time low, this bull market could be heating up real soon.

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