U.S. Dollar Has A Lot Of Upside Potential – Part III
Chris Vermeulen | Aug 18, 2020 01:20PM ET
- Presidential election cycles drive U.S. dollar trends.
- U.S. dollar expected to rise before the election and then stall right before the day of the election.
- Money will start shifting away from the stock market now, and traders will likely target safe-haven investments and undervalued traditional investments (dividends, blue chips, utilities, energy, bonds, consumer service and supplies and possibly technology suppliers) going forward.
- The potential for a U.S. dollar upside price rally after the elections (just like the 2013~2014 setup) is a very valid expectation from a technical analysis perspective.
This is the final part of our three-part U.S. dollar research article. My research team's belief is that the U.S. dollar will recover in value before the U.S. Presidential election, then stall right before the election date as traders attempt to digest the outcome of the election. In this final part of our research article, we're going to share insights and technical analysis setups that we believe support our predictions on the U.S. dollar. Please take a minute to review of this research series if you have missed any portion of it.
Our research team has highlighted a price pattern in the U.S. dollar that seems to be fairly consistent over the past 8+ years. This pattern suggests the U.S. dollar will move higher over the next 60+ days, which may likely correlate with the U.S. stock market stalling and/or moving lower. Just prior to the Nov. 3, election, the U.S. dollar should stall as global traders and investors await the results. After the election is complete, then we watch the scramble as global traders and investors attempt to reposition assets to take advantage of perceived opportunities.
h2 Custom Smart Money Setting Up Head-And-Shoulders Top/h2We are going to start by reviewing our Custom Smart Money Index Weekly chart, below. This Smart Money Index chart highlights the triple-top pattern that appears to be setting up after the COVID-19 collapse. We find this important because the “true smart money peak” in the U.S. stock market occurred near the peak in January/February 2018. Therefore, our researchers believe the true organic growth peak in the U.S. and global markets occurred well over two years ago – not throughout the new price peaks we've experienced in the U.S. markets after the COVID-19 collapse. Those, secondary price peaks, were speculative peaks – not organic economic growth peaks. And speculative peaks tend to end in explosive contraction events.
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Without getting into politics, policies or other aspects of the 2020 U.S. Presidential election, there are only 60+ days left for skilled traders and investors to prepare for either a Trump or Biden Presidency. Each candidate has outlined numerous objectives, tax policies and spending plans. All of the translates into how consumers and businesses plan for and prepare to operate within these potentially new economic constructs. When you stop and think about the potential differences between a Trump second term and a new Biden term – the stakes for investors and traders are much higher than many expect.
Because of this high-stake U.S. Presidential election, we believe global traders and investors will begin to move assets away from the high-flying U.S. stock market and away from excessive risks. Traders will instead likely target safe-haven investments and undervalued traditional investments (dividends, blue chips, utilities, energy, bonds, consumer service and supplies and possibly technology suppliers) going forward.
My research team believes the transition away from the high-flying technology sectors and S&P sectors will be a move into protection – away from risks relating to a potential collapse in the U.S. stock market. We believe the triple-top in our Custom Smart Cash Index clearly illustrates how the U.S. and global stock market is functioning – even though the price charts for the NASDAQ and S&P 500 charts show moderately higher price levels. This Custom Smart Cash Index shows a clear head-and-shoulders pattern setting up – which is a strong indication that another decline in price levels may be in our immediate future.
h2 Comparison Currency Analysis Shows U.S. Dollar May Rally 5% Or More/h2This comparison chart below, comparing the Asian currencies and the U.S/.Western currencies, highlights another technical pattern that we believe substantiates a potential U.S. dollar rally over the next 60+ days. The Custom Asian to U.S./Western currency index chart is the candlestick price chart, while the U.S. Dollar Index is shown on this chart as the BLUE LINE on this chart. What we want you to focus on is how the Asian to U.S./Western index tends to parallel the U.S. Dollar Index more than 80% of the time on this chart. Yet, we also want you to focus on the times when the U.S. Dollar Index (the BLUE LINE) varies away from the Custom Index price levels. We found this very interesting as the U.S. Dollar Index tends to react in ways that leads and lags the price correlation of the Custom Index.
We also believe the current extreme low price level in the U.S. Dollar Index is similar to the 2013~14 area on this chart – where the U.S. dollar was pushed lower because the U.S. stock market continued to rally to new highs and traders/investors concerns were the “fear of missing out” of the rally. When this happens, global traders pile into the U.S. stock market and ignore the U.S. dollar. Who cares that the U.S. dollar lost 3% to 4% of value when the U.S. stock market just rallied 13% to 20% over the past 16+ months.
Yet, the minute the U.S. stock market enters a period of consolidation, sideways trading and concern, then everyone suddenly cares what's happening with global currencies and the U.S. dollar because 8% to 15%+ rotations in the stock market while the U.S. dollar is falling 3% to 5% or more can really hurt foreign investors.
We believe the current setup on the right side of this Asian to U.S./Western currency correlation chart is very similar to what happened in late 2013 – where the correlation price index rose to a peak near 38 – then stalled into a narrow sideways channel. The U.S. Dollar Index collapsed throughout this span of time and then suddenly started to gain in value in late 2014 – right near the peak in the markets before the 2015/2016 U.S. stock market (which also correlated with the start of the 2016 Presidential election campaigns). Imagine what would happen if a similar rally in the U.S. dollar took place after the 2020 elections and how that will reflect as global investors pile into the U.S. markets with a stronger U.S. dollar.
As technical traders, we attempt to identify and analyze these types of technical patterns as well as price patterns and other advance price theory. Our job is to try to find hidden, often somewhat secret, correlations in price, technical patterns, seasonal patterns or cross-market trends so our members can profit from these setups. When we're right, we try to take advantage of these setups and alert our members to the trade setups as they happen. When we're wrong, we take our losses – just like everyone else.
We believe this setup in the U.S. Dollar Index could be a very valid technical price trigger that could prompt a big rally in the U.S. dollar and U.S. stock market. We believe the rally in the U.S. stock market may start to to really shape up in late 2021. Yet, everything depends on what happens over the next 90+ days and how the U.S. elections turn out. This year, the one thing we're not going to try to predict is the results of the U.S. Presidential elections – that's not our specialty. We do believe the potential for a U.S. dollar upside price rally after the elections (just like the 2013~2014 setup) is a very valid expectation.
Either way, we're going to be here to help you find these incredible setups and great trades. Think about how a big rally in the U.S. dollar will result in a massive influx of capital from foreign investors and institutions. It is a very real possibility at this point – stay tuned for more from our research team.
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