Thursday, October 1, 2009

Dollar seasonal cycle

There's quite the debate going on as to whether the dollar is putting in a major bottom right here. It's the same ole' inflation/deflation debate.

To get some idea of what we might expect I'm going to take a look at the seasonal cycle for the dollar. Now keep in mind cycles aren't 100% anymore than any other tool we use but they can be used to get the odds on our side and that's the best any of us can do.

The seasonal cycle for the dollar lasts roughly 12 months. I've marked the last confirmed seasonal cycle low on the chart back in March 08.

The question now becomes whether we saw the 09 seasonal cycle low in March, June or is the dollar trying to put in that bottom right now?

March would fit the average timing band being almost exactly 12 months from the last seasonal and 4 year cycle low by the way. That was a major cycle low and gave us the best odds for a serious rally, just like in 05.

Until we break the 08 lows this 4 year cycle still has a chance, however I think we are already seeing a failed seasonal cycle.

I think the dollar is way to far outside the "normal" timing band for it to be putting in the seasonal bottom right now. I'm leaning heavily towards June being that bottom.

The fact that the current weekly and probably the seasonal cycle has already rolled over to new lows is skewing the odds very heavily towards the secular bearish trend back in force after the year long rally. A failed seasonal cycle is also highly suggestive that this four year cycle is also going to fail and move below the March 08 low.

Now the dollar may and probably is trying to put in a weekly cycle low. However the timing is still a bit short of normal so I tend to think we have at least one more daily cycle down into that low which should bottom sometime in late Oct. or early Nov.

Now of course there is still the possibility of a stretched weekly cycle too. That could mean the dollar has two more daily cycles before bottoming and we won't see that low until early spring.