The Most Lopsided Trade

I would say without a doubt the most lopsided trade in the world right now is the long dollar trade. Virtually everyone has become convinced that the dollar is going to 110, 120 or even 160.
Folks when everyone is thinking the same thing … then no one is thinking.
So let’s take a look at this ‘one way’ trade.
If the dollar is going higher then it goes without saying that it should continue to make higher highs and higher lows. That is the definition of a rising market. But last month the dollar not only broke the triangle consolidation pattern, but it dropped below the intermediate cycle low in May. That is a failed intermediate cycle. Failed intermediate cycles generally only occur when the larger multi-year cycle is in decline.
Next let’s look at the two largest weighted currencies that make up the dollar index, the euro and yen.
For a currency that we’ve been told is going back to par, I have to wonder why it’s making higher intermediate highs & higher lows, regained the 200 day moving average, and broken the year long down trend line.
The same thing is manifesting in the yen. A major multi-year down trend line has been broken and the 200 DMA recovered.
If these two currencies are bottoming then the dollar is topping.
Next let’s look at a long term chart of the dollar. At the recent peak earlier this year the dollar had retraced almost 62% of the previous bear market. The bull in the 90’s retraced about 50% of the previous bear before rolling over. This bull is almost 8 years old and it may very well be time for the next bear market to begin.

This post was published at GoldSeek on 14 September 2015.