Cycle Trading

Today’s upside surprise on the dollar signals that May 1st marks the daily cycle low making today day six of a new daily cycle.

At the time we considered that May 1st marked a daily cycle low. However, part of our thinking was it really was too early for a DCL. Yesterday’s breakdown fit our expectation of the dollar continuing into an intermediate cycle decline.

I pointed out earlier that contra-trend rallies normally do not extend past 4 days once the cycle is in decline. So today’s reversal signals a new daily cycle.

However, our expectation of a continued dollar sell off was well reasoned. There are 59 daily cycles between the March 2008 Super Cycle Low and the September 2008 Yearly Cycle Low. Of those daily cycles, only 4 of them printed a daily cycle 11 days or less. So there was over a 93% likelihood of a continued dollar decline.

So the next thing to determine is if this is the fourth daily cycle of the intermediate cycle or does this mark a new weekly cycle?

Well as you can see on the above daily chart a break above 83.19 forms a higher high, thus breaking the pattern of lower highs.

This is either week 14 of the weekly cycle or week 1 of a new intermediate cycle. Thanks to the dollar surge today, the dollar has formed a weekly swing low off the week 13 candle. As we just discussed, a break above 83.19 forms a higher high. It would also see the dollar break above the declining weekly cycle trend line confirming a new weekly cycle.

Of the 78 intermediate cycles studied between 1978 and 2008 only 10 printed an intermediate cycle low at 13 weeks or less. Which is only 12% possibility. However if this is a new intermediate cycle, that would extend the yearly cycle.

If this is the last daily cycle we can expect it to peak on or before day 8. Then print a daily and intermediate cycle low in about 4 – 5 weeks which takes us out into June.

If this is a new intermediate cycle that could extend the yearly cycle out to September. Also, if this is a new intermediate cycle we can expect it to form as a left translated weekly cycle as it declines into its yearly cycle low.

pk34145 was interested in comparing the dollar to the EURO so lets take a look.

The EURO shows a trend line break on day 11 signaling a daily cycle decline. With a day 5 peak, this could turn out to be a left translated daily cycle.

If the EURO daily cycle fails, that would signal the the weekly EURO cycle is in decline. With a week 4 peak and currently on week 5, that could mean another 10 – 15 weeks of a declining EURO.

So there are some different scenarios to consider.
Whether or not the dollar is rejected by the 83.19 level will determine which way we go …