Cycle Trading

Bernanke spoke and the dollar reversed …

Wednesday was day 15 for the daily dollar cycle. The dollar closed 1.38 lower off the daily high forming a daily swing high. The buck also broke below the daily cycle trend line confirming that the daily cycle is in decline. This was a big, dramatic reversal which might signal trouble for the dollar going forward.

The dollar just printed a yearly cycle low in June. Already this new yearly cycle appears weak. The current daily cycle could decline for up to the next two weeks which could leave behind a red monthly candle for month 1 of this new yearly cycle. I don’t want to get too far ahead of things, but could the dollar be setting up for a peak on month 1 followed by a year long sell off? There is precedent for yearly cycles peaking on month 1.

Another influence on the dollar is the gravitational pull of the three year cycle low. The dollar’s 3 year cycle averages 35 months from trough to trough. The dollar is currently on month 26 of the three year cycle. The dollar will need to begin its journey into its three year cycle low.

Since 1978 there have been eleven 3 year cycles. Eight of the Eleven 3 year cycles concluded the 3 year cycle with a failed yearly cycle. So there is a good likelihood that this new yearly cycle will also fail.

All of this did not seem to be lost on gold. We discussed last night that gold appeared to be waiting on the dollar to roll over before breaking above the resistance at 1260.

That’s just what happened. With the dollar confirming it has entered is daily cycle decline I believe gold declared it intention to have this daily cycle form as a right translated daily cycle by gaining close to 2% today.

With the prospect of the dollar heading into its daily cycle low, that should continue to be bullish for gold …