-->urrency Faux Paus's

The US dollar index is poised to go to 60 in the next 18 months and will likely cause trading blocks to develop. A lower USD translates into imported goods costing more. This will compound the government's financial situation, causing them to turn on the printing press. This will generate hyperinflation due to currency expansion. All great hyperinflations ALWAYS end in deflation. Other countries will lower their interest rates to try and make their currency more competitive. At some point, higher interest rates across the board will occur to prevent currency meltdowns and unless currencies are backed by gold, they could fail. This is one reason to be extremely bullish on gold. Governments around the world are going to have to add gold to their coffers somehow to have economic stability. During a period of deflation, it makes sense to have a gold-backed currency, because that is what usually will trigger a gold-backed currency to develop in the first place. Periods of economic growth require a dollar de-coupled from gold so economic expansion is not hindered. With a collapse in global populations, money supply etc., there will be no expansion mode required, so a gold backed currency situation will work, in fact it is all that will work. Economic trading blocks must be established for countries with little or no natural resources, or they will be destitute. England and several European countries come to mind. I think the US will become self-sufficient with what they have, but only because a massive reduction in their standard of living is coming.

US Dollar Index (USD)

The lower 55 MA Bollinger band has been riding beneath the index for some time, suggestive a bottom was looming. I felt the index would test the lower 80 level for longer than it did, but that proved wrong. Refer to Figures 4 and 5 for the Elliott Wave count of the USD. There is a temporary bottom in place that will be tested in 2-3 months time. The full stochastics below are on a longer-term setting and have an apparent lag for when bottoms and tops are hit. The %K is a given now to cross above the %D. There is a massive short-covering of USD positions driving it higher as we speak. The mass speculation is causing the violent swings in all markets, so until it is quashed, volatility will remain.

Figure 1

The 50-day moving average is current around 83. The USD index will take out this value within the next week. The decline from October was approximately 2 ½ months, so the corrective pattern in the USD is likely to stay in its bounce up for one month minimally. There is at least three more week's strength in the USD. One point to not is the rapid ascent of the short-term stochastics. The USD has had a remarkable 3-day rise. Flagpole moves usually burn out short-term stochastics quickly. I am looking for a short-term top in the US dollar on Thursday followed by a retrace. The corrective pattern is still going to progress as described above.

Figure 2

The weekly USD is shown below. The upper Bollinger bands are starting to fan out, suggestive the next ribbon formation is starting to get ready to slowly form. I have drawn sloping red lines to indicate the slope of the rising stochastics. Accompanying this are vertical lines to show the point corresponding to bottoms in the USD and subsequent rises. Most of the slopes are generally sharp. Note the recent slope that has been developing and compare the two red circles. Failure to produce a strong up-trend is a sign of a lack of strength. The USD is likely to hit 83 in the next week, followed by a partial retracement that could last a week or two. Time will tell, but it is best to tread carefully, because a prior article I posted suggested the USD index was going to 60 in the coming 18 months.

Figure 3

The Elliott Wave count of the mid-term USD index is shown below. I had to modify the last portion of the count due to the rapid ascent in the index. I think the wave 1.(5).[1].c is ugly, but that is life. The completion of the impulse down has a high probability of now being complete and is set to rally to one of the Fibonacci retracements. A move to 85.34 represents a 61.8% retracement of the decline. The time horizon for this move is minimally one month.

Figure 4

The short-term Elliott Wave count of the USD index is shown below. The count required changing due to the rapid ascent of the USD index during the past 4 days. Wave 5.(5) below was a terminal impulse (3-3-3-3-3). This implies that 82.6 will be hit, most likely by Thursday this week. The move up in the USD has a corrective signature.

Figure 5



David Petch
TreasureChests.info

(aus savehaven.com)