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Forecast a year increase on the Dollar

Publié le 4 Juin 2008, 14:19pm

Catégories : #FOREX

Forecast a year increase on the Dollar

The dollar index is a good indicator
The Dollar index (Reuters DXc1, CQG DXC5 and Bloomberg DXY) is more commonly known as  the 'effective dollar exchange rate' and is a flagship index for the forex and treasurers. It embodies the dollar against a basket of six other currencies: the euro, yen, sterling, Canadian dollar, Swedish krona and Swiss franc.

A likely end cycle for the falling dollar:

The dollar index has made a triple cylindrical bottom as shown by the chart since January 1971. Muné Hisa Homma figure's a  'Morning star' on a monthly chart would indicate for a continued reversal in the dollar against other currencies which began over the past two months. The Elliot decomposition  would also point in this direction after an ABC pattern. We would be at the dawn of a new round of increases on the dollar. In terms of sectorial linkages, our scenarios of the fall of thirty dollars on crude published online the eve of its highest historical level at $ 135.00 and the rebound of all the indices also argues in favour of this scenario.

The targets in dollar index rebound:
The index could first retrace the last down movement initiated in November 2005 from 92.72 to reach 70.70 last March. The retracement targets are 76.38, 79.24, 81.79 or 84.34, and represent the respective Leonardo Fibonacci ratios. To achieve this, the Dollar index should break the 74.25 resistance level. Our strategy calls for a first target located at 81.00 which also nears support at previous lows  in October 1978, November 1990, July 1995 and March 2005. After reaching our target at 81.00, the dollar index could then correct back to the following levels: 78.76 and 77.35. The potential for another rebound  would mean our longer-term targets to be 83.20, 90.00, 96.00, 102 or 108.75 to retrace the last cylindrical wave from the 2001 summer peak's at 121.00 as showed by the chart below.

Formation of a long term 'wedge':
The retracement slant according to the Cylindrical model however, give a more gentle slope with a target at 95.00 by the summer of 2014. The dollar index is forming a large bearish wedge and loses energy after each retracement to the cylindrical curve. This would point to a limited bullish retracement to 89.50, representing a ratio of 0,382 according to Fibonacci. This level coincides with the resistance initiated by the major peaks in February 1985 at 164.72 and July 2001 at 121.02. This resistance would be the upper limit of the wedge formation.

This upward movement inspired by Gann could last ten months:
The dollar index has been in a bearish channel since September 2003 whose pillars are located on levels of 69.80 and 81.00. This last point is our medium-term objective. This level is calculated at a rate of eleven candles in ten months. For the record, the last bullish retracement made seven years ago was achieved from December 2004 to December 2005 with is an increase of twelve candles from 80.00 to reach the 92.72 level.

The limits of our strategy:
Conversely, a fall back before this summer under the support level located at 71.60 would put our strategy in danger, and would be definitely invalidated if we reached below 70.70.

Louis-Serge Real del Sarte



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