Bulls in Control of the Dollar

Last week was a game changer for the dollar. The recent breakout in the US Dollar Index is a very strong indication that a bull market in the dollar is in progress. This post is an update to the blog entry back in late April 2011 when the mainstream media was pronouncing the "death of the dollar" and economists and analysts were writing obituaries on the demise of the dollar as the world's reserve currency.

The US Dollar Index rallied initially in May 2011, then was stuck in a "sideways trend" for over 3 months. The early May 2011 low was never taken out. Here is the short term chart of the US Dollar Index.

The May 2011 low marked the end of Primary wave [2] down in the US Dollar Index. From the early May 2011 low, we got an initial kickoff rally, Minute wave [1] up, that unfolded for most of the month. The retracement that followed the rally lasted almost three months as Minute wave [ii] down unfolded as a double zigzag with Minuette wave (x) of Minute wave [ii] taking out the previous high by a small margin.

Now that the breakout happened, we can be confident that the advance in the dollar is just getting started.

Here is a chart showing the intermediate term outlook of the US Dollar Index.

Primary wave [2] down in the US Dollar Index unfolded as a (W)-(X)-(Y) combination correction where Intermediate wave (W) unfolded as an expanded flat, and Intermediate waves (X) and (Y) unfolded as zigzags. The first subwave of Primary wave [3] up in the US Dollar Index, Intermediate wave (1) up, is seen advancing the index above the high of Primary wave [1], since the Primary degree third wave is very likely an extended third wave. The upside target for Intermediate wave (1) of Primary wave [3] up in the US Dollar Index is 93, to be reached in September 2012.

Finally, here is a longer term chart showing the outlook of the US Dollar Index out to 2016.

The target for Primary wave [3] up in the US Dollar Index is 153, to be reached in March 2016. Five years is a reasonable duration for a Primary degree advance in a bull market. The end of Primary wave [3] up in the US Dollar Index should correspond with end of Primary wave [3] down in the stock market.

The US Dollar Index is a very important part of the larger picture, namely, "The Great Deflation" unfolding with increasing momentum over time. The end of "The Great Deflation", identified as Supercycle wave (a) of Grand Supercycle wave [IV], should correspond with Cycle wave I up in the US Dollar Index, which should occur around November 2021.