QUICK LOOK REPORT #28
by Dr. Stephen Rinehart
September 27, 2006

Background:

Quick Look Reports performs the forensics of the dominant trend in an Index, Equity or Commodity. This report looks at the possible long-term daily United States Dollar (USD) Index trends which could emerge from the dominant cycle(s) (the dataset for the USD  Index is the daily closing prices from 1971 using an updated dataset from Sharefin (see www.sharelynx.com). I have not previously published information about the long-term cycles for the USD Index on FinancialSense University. The current dominant (daily) cycles in the USD Daily Index are the 2800-day cycle (10.7 year cycle), 1800-day cycle (6.9 year cycle) and the 1000-day (3.8 year) cycle. 

Chart 1 presents the dominant trend from 1971 for the USD Daily Index. It actually shows a slight downtrend (i.e., with significant volatility for an Index this large) over the years if a low pass filter (not a moving average) is used and the overall graph is characterized by the major resistance at a level of about 80 for the USD Index. What is striking about the graph of the world’s largest currency is the wild volatility in the USD Index  particularly in the period from 1980 thru 1987. 

Chart 2 presents the three largest daily cycles in the dataset from 1971 of the USD Index. The current situation is similar to July 1982 when the 2800-day cycle was increasing together with the 1800-day cycle and we were on the verge of coming significant interest rate increases by 1983 (but today few would expect any interest rate increases in next 12 months and cuts may be needed to support a soft landing so what gives here?!).

Chart 3 shows a possible projection of the three largest cycles into 2011. The current waveform will turn significantly downward by July 2010 and this area poses a significant risk for the USD Index. I would expect a major firefight to erupt around this date to support the USD Index skid (the USD Index level of 75 is a possible lower bound to defend the USD) If the USD Index falls below a level of 70 then we are facing a possible rout in the USD Index and you may want to evaluate your currency holdings when USD Index reached 75.

Chart 4 suggests a major confrontation for the USD Index between Oct 2009 and Dec 2012 with a major decline possible in the USD Index. I would characterize this as a high risk timeframe for the USD Index and it will be needing a lot of support from world Central Banks to try and hold “Fort Apache” (keep those fiat printing presses in high gear). It is going to be an interesting time because a large “secular bear” may be lurking in the background of this drama. 

 Bottom Line: 

1. One of the key findings of this study is the existence of three large and long-term daily cycles which appear to govern the long duration behavior of the USD Index. The largest cycle should be forming its top in late November 2007 so the USD Index is not expected to suffer a lasting (major) downside correction anytime soon. 
2. The band for the USD Index between 75 and 82 looks like the “Last Line of Defense” for the USD Index over the past thirty years. It is expected that the USD Index will be strongly supported to prevent a decline below USD level of 75 in the next three years.
3. The critical period for the USD Index is between Oct 2009 and Dec 2011. There is going to be a major firefight in the USD around a level of 75 (whenever that happens) to stem the hemorrhaging. However, the USD Index will eventually lose the fight and it is currently estimated the USD Index will be approaching levels below 60 by December of 2012 if not sooner. The USD Index will not go down easily and it is going to be a long-winded struggle. 
4. The date 9/12/2013 (relative low point in the USD) appears to be a candidate for some major type of geopolitical/military event which will restore the USD Index Level for possibly several years. In the period from 2016 to 2020, I would expect the USD Index will no longer be the world’s currency of choice and will be replaced by the “Amero” or some other combination of currencies as well as a precious metals complex.

Remarks: There are no “unstable cycles” currently present in the USD Index and in fact it looks like one of the more solid world indices until late 2009. I am left with the impression that the USD Index is one tough customer and has a lot of muscle left to flex. Nothing is going to take this currency significantly down anytime soon based on cycles alone. In fact, the analysis suggests timeframes when possible future geopolitical/military actions may occur in support of the USD Index. There is a major confrontation (with wild volatility) headed for the USD Index in the period from late 2009 thru early 2012 possibly setting up the “2012 Gold Olympics”.

 
© 2006 Dr. Stephen Rinehart
Editorial Archive

CONTACT INFORMATION
Dr. Stephen Rinehart
Lynn Haven, FL USA
Email

DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, the author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.