Sunny Weather Delays Dollar Moon Shot

Two recent posts looked at the U.S. dollar bull market. In Massive Generational USD Basing Pattern Complete, I posted the broad trade-weighted U.S. dollar index. The series has been discontinued (DTWEXB at Fred), but replaced with DTWEXBGS. That's the one I'm tracking now. This is not a tradable index, but is instead weighted by America's trading partners. The Canadian dollar, Mexican peso and Chinese yuan are heavily weighted in this index, along with the yen and euro.

The other was The Bear Market Moves to Forex. The yuan, yen and euro all indicated the USD rocket was on the launch pad, fueled and ready for takeoff.

Imminent breakouts often fail at this juncture. Back in November 2019 I posted Plug Pulled on Latin America, showing the Brazilian real on the cusp of a breakdown. You can see that tagging of the horizontal in November 2019, a pullback that ended in the first week of January, followed by the ensuing move that completed the pattern and unleashed a massive breakout.

Below are the USDEUR,USDJPY and USDCNY showing similar setups. Extremely bullish outbreaks will occur if and when (I think when) these patterns complete. I do not believe they are ready to move though. The macro and sentiment backdrop isn't ready. A breakout rally in the dollar here would accompany accelerated financial market panic. It would open up a climactic crash scenario. Everything fails, right here right now. A move of this size will unleash a panic, but everything else is saying bounce here.

Other charts indicate extreme fear, which often marks the end of a selling panic. The U.S. stock market has spent 4 days around the current price level—albeit in a wide range. Beaten down stocks have started seeing big rallies. Major stimulus from governments is coming. There is extreme panic around this virus. I've seen absurd projections for deaths and infections as mainstream people run the math that I was doing here in January when there was no evidence that quarantines worked. (I also laid out my Coronavirus Initial Thoughts here.) The charts, sentiment, macro and my gut say we are already in a trade-able bottom.

For myself, I'm heavily positioned on the long side. I have taken a small long position on the Mexican peso, platinum, and U.S. markets. I have calls on stocks and funds (real estate and oil). Below is a chart of the peso. If that is a small inverse H&S forming, the measured move will take it up to the 0.4378 area, which sets up a larger basing pattern. Bullish setups have failed for several days, but I'm seeing similar setups in U.S. stocks and elsewhere. I think the panic is done for now, but I will quickly move to flat if there is another wave of sustained weakness because the forex charts above indicate if this keeps going, they will add rocket fuel to the fire.

I expect The Dying Dollar System will go on dying by deflation (inflation and currency devaluation for the rest of the world), but not just yet.