USD's Uncertain Horizon: Will the Dollar Weather Global Changes?
Introduction:
In this revised analysis of the DXY, we explore a multi-layered Elliott Wave structure comprising three main waves – blue, orange, and red – and examine their interactions within different corrective channels. This analysis also considers historical economic events and current global shifts to project potential future movements of the DXY.
Wave Structures:
Channels:
Wave Dynamics and Historical Context:
Current Movements and Future Scenarios:
Scenario 1: Continuation of the Decline
Scenario 2: Rebound and New Impulse Waves
Broader Perspective:
Why is Corrective Price Channel (1) Considered the Real DXY Value?
The question of the real value of the DXY post-Nixon shock is intriguing. Following this event, the US dollar ceased to derive its value from gold, marking a transition to what can be considered its true value. This shift turned the dollar into a piece of paper whose worth is determined by public perception, not unlike the way Bitcoin is valued today. During this time, the technology used to print the dollar was regarded as cutting-edge, much like computers that produce Bitcoin.
When the DXY fell to around 80, Ronald Reagan's administration implemented expansionary fiscal policies and dramatically increased interest rates. Most countries were heavily reliant on the dollar at this time and had limited options for response, which led to the sharp green rise in the DXY, forming what I refer to as the orange A wave.
The subsequent Plaza Accord saw the US and G7 countries take concerted steps to devalue the dollar, intending to bring it back to what was considered its natural level. This agreement played a significant role in reversing the previous sharp increase.
As a result, I view the movement above Corrective Price Channel (1) as a consequence of extreme policy measures rather than a genuine market movement. These policies led to an artificial inflation and then deflation of the dollar's value within the channel, distorting its true market representation.
Why I Believe Scenario 2 is More Likely to Happen:
My belief in the likelihood of Scenario 2 stems from the concept embodied by the 'BRICS Group.' It's not just the group itself, but the underlying idea it represents that's pivotal. This notion reflects a growing weariness among many nations over the United States' dominance in the global economy, particularly through its control of monetary movements via the dollar.
Increasingly, these countries are convinced of the need to break free from this American economic influence. There's a rising trend of nations seeking to support their own currencies more robustly, fostering trade exchanges directly in their local currencies. This shift represents a significant move away from the long-standing norm of viewing the dollar as the primary benchmark for other currencies. By doing so, these countries aim to establish a more autonomous economic framework, less dependent on the fluctuations and policies of the US dollar.
Of course, the shift away from the dollar's dominance won't be immediate, and the US is well aware of this. America has formulated strategic plans to counteract the BRICS group's initiatives. This strategy began with imposing successive sanctions on China to curb its economic growth, then moved to geopolitical maneuvering in Ukraine, aiming to engage Russia in a prolonged, draining conflict. A similar approach has been considered for China, involving potential conflicts surrounding Taiwan.
However, recent developments in the Middle East have led to a significant shift in America's focus. Originally aiming to maintain its global economic supremacy, the US is now increasingly involved in conflicts that center around protecting Israel. This involvement has drawn the US deeper into long-term, complex wars. Notably, its military actions in Yemen and the distribution of forces across Syria, Iraq, and the Red Sea region increase the difficulties of controlling this war.
America's repeated use of its veto power to block ceasefires has further impacted its global standing. Once viewed as a moral and diplomatic leader, the US is now perceived differently on the world stage, a change I believe will affect its international image for an extended period.
This evolving perception and the shifting focus of US foreign policy are likely to result in an increasing number of countries seriously considering breaking away from the dominance of the US dollar. This trend suggests a growing alignment with the principles of the BRICS group, even if countries do not formally join it. The goal is to escape the overbearing influence of America and the G7 on their economies.
In response to this shift, the United States is unlikely to passively accept these changes. It's anticipated that America will attempt to implement financial policies similar to those used in the 1980s. These policies were designed to elevate the dollar's value and prevent significant declines. This approach is expected to lead to the emergence of five new waves in the dollar's valuation, marking the final phase of this economic cycle.
However, the global economic landscape of today is markedly different from that of the 1980s. Most countries now possess stronger economies, or at the very least, they have the capability to rely on their local economies for essential services. My analysis indicates that when the DXY reaches around the 125-131 range, the dollar is projected to fall to levels between 70 and 65, thereafter moving within a sideway Waves in a maximum value of around 110, which is expected to gradually decrease over time.
An important note is that America appears to be seeking alternative strategies to maintain economic control. One such strategy is the control of the cryptocurrency market, as evidenced by the Securities and Exchange Commission's approval of spot ETFs for Bitcoin. This move suggests that America is preparing for scenarios where it may no longer be able to exert direct control over the dollar's value.
Disclaimer:
This is not trading advice. Please conduct your own research and consult with financial experts before making any trading decisions.
In this revised analysis of the DXY, we explore a multi-layered Elliott Wave structure comprising three main waves – blue, orange, and red – and examine their interactions within different corrective channels. This analysis also considers historical economic events and current global shifts to project potential future movements of the DXY.
Wave Structures:
- Blue Wave: Represents the main wave in an ABC flat correction format.
- Orange Wave: A complex correction forming the blue Wave B.
- Red Wave: Another complex correction, creating the orange Wave B.
- Five Impulse Waves: Potentially part of or completing the Orange Wave C and Blue Wave B.
Channels:
- Corrective Price Channel (1): Believed to hold the true value of the DXY. Further explanation will follow.
- Corrective Price Channel (2): Encompassing the red correction wave.
- Termination Channel: Contains the five impulse waves and is expected to be breached during the current DXY correction.
Wave Dynamics and Historical Context:
- Post-Nixon Shock Movement: Following the Nixon shock, the DXY fell to around 80, completing the Blue Wave A.
- Sharp Rise to 164: Initially thought to be Blue Wave B, but I realize that naming such a significant and steep rise as a B wave might not align with conventional EWT principles. Typically, B waves are corrective and less dynamic compared to impulse waves, therefor I consider it as the first leg of the orange wave and labeled orange A
- Subsequent Sharp Decline: The fall to around 78 is labeled Red Wave A for the same reason.
- Rise to 121: This phase represents a complex correction that forms the Red Wave B, following a WXY pattern:
* W: Manifests as a flat correction.
* X: A simple correction.
* Y: Takes the form of a Zigzag, which is more clearly visible in the smaller 1M Frame. - Decline to 70: A sharp drop in a Zigzag pattern (seen in the 1M Frame), completing the Red Wave C and the Orange Wave B, notably ending behind the start of Orange Wave A.
Current Movements and Future Scenarios:
- Rise to 114: Characterized by a shallow trend angle, suggesting it's a corrective wave.
- Ongoing Correction: Following the five impulse waves, based on Kennedy Channels Theory, the DXY is expected to break the Termination Channel, potentially descending to the 93-87 area.
Scenario 1: Continuation of the Decline
- Description: If the DXY continues its downward trajectory, it would indicate that the previous impulse wave forms the final leg of the Orange Wave, which is in the form of a running flat.
- Impact on Wave Structures: This movement also completes the Blue Wave B simultaneously.
- Projection: Following this path, we would move towards completing the Blue Wave C, potentially reaching around 73.
- Analysis Viewpoint: This scenario aligns well with the Elliott Wave analysis, culminating in a regular flat correction for the DXY.
Scenario 2: Rebound and New Impulse Waves
- Description: Should the DXY rebound from the current area and initiate a new series of 5 impulse waves, it would suggest that the Orange Wave C is developing in a Zigzag pattern.
- Expected Range: The completion of this pattern is projected to be in the 125-131 area.
- Further Classification: In this case, the Orange Wave would be categorized as WXY, forming the Blue Wave B behind the start of Blue Wave A.
- Implication: This would predominantly characterize the Blue Wave as an extended flat correction, potentially driving the DXY down to the 70 level, and possibly even lower to around 65 (corresponding to the 1.272 and 1.618 Fibonacci levels).
- Likelihood: From my personal standpoint, this scenario appears to be the more probable outcome, with reasons for this view to be elaborated in the following section.
Broader Perspective:
Why is Corrective Price Channel (1) Considered the Real DXY Value?
The question of the real value of the DXY post-Nixon shock is intriguing. Following this event, the US dollar ceased to derive its value from gold, marking a transition to what can be considered its true value. This shift turned the dollar into a piece of paper whose worth is determined by public perception, not unlike the way Bitcoin is valued today. During this time, the technology used to print the dollar was regarded as cutting-edge, much like computers that produce Bitcoin.
When the DXY fell to around 80, Ronald Reagan's administration implemented expansionary fiscal policies and dramatically increased interest rates. Most countries were heavily reliant on the dollar at this time and had limited options for response, which led to the sharp green rise in the DXY, forming what I refer to as the orange A wave.
The subsequent Plaza Accord saw the US and G7 countries take concerted steps to devalue the dollar, intending to bring it back to what was considered its natural level. This agreement played a significant role in reversing the previous sharp increase.
As a result, I view the movement above Corrective Price Channel (1) as a consequence of extreme policy measures rather than a genuine market movement. These policies led to an artificial inflation and then deflation of the dollar's value within the channel, distorting its true market representation.
Why I Believe Scenario 2 is More Likely to Happen:
My belief in the likelihood of Scenario 2 stems from the concept embodied by the 'BRICS Group.' It's not just the group itself, but the underlying idea it represents that's pivotal. This notion reflects a growing weariness among many nations over the United States' dominance in the global economy, particularly through its control of monetary movements via the dollar.
Increasingly, these countries are convinced of the need to break free from this American economic influence. There's a rising trend of nations seeking to support their own currencies more robustly, fostering trade exchanges directly in their local currencies. This shift represents a significant move away from the long-standing norm of viewing the dollar as the primary benchmark for other currencies. By doing so, these countries aim to establish a more autonomous economic framework, less dependent on the fluctuations and policies of the US dollar.
Of course, the shift away from the dollar's dominance won't be immediate, and the US is well aware of this. America has formulated strategic plans to counteract the BRICS group's initiatives. This strategy began with imposing successive sanctions on China to curb its economic growth, then moved to geopolitical maneuvering in Ukraine, aiming to engage Russia in a prolonged, draining conflict. A similar approach has been considered for China, involving potential conflicts surrounding Taiwan.
However, recent developments in the Middle East have led to a significant shift in America's focus. Originally aiming to maintain its global economic supremacy, the US is now increasingly involved in conflicts that center around protecting Israel. This involvement has drawn the US deeper into long-term, complex wars. Notably, its military actions in Yemen and the distribution of forces across Syria, Iraq, and the Red Sea region increase the difficulties of controlling this war.
America's repeated use of its veto power to block ceasefires has further impacted its global standing. Once viewed as a moral and diplomatic leader, the US is now perceived differently on the world stage, a change I believe will affect its international image for an extended period.
This evolving perception and the shifting focus of US foreign policy are likely to result in an increasing number of countries seriously considering breaking away from the dominance of the US dollar. This trend suggests a growing alignment with the principles of the BRICS group, even if countries do not formally join it. The goal is to escape the overbearing influence of America and the G7 on their economies.
In response to this shift, the United States is unlikely to passively accept these changes. It's anticipated that America will attempt to implement financial policies similar to those used in the 1980s. These policies were designed to elevate the dollar's value and prevent significant declines. This approach is expected to lead to the emergence of five new waves in the dollar's valuation, marking the final phase of this economic cycle.
However, the global economic landscape of today is markedly different from that of the 1980s. Most countries now possess stronger economies, or at the very least, they have the capability to rely on their local economies for essential services. My analysis indicates that when the DXY reaches around the 125-131 range, the dollar is projected to fall to levels between 70 and 65, thereafter moving within a sideway Waves in a maximum value of around 110, which is expected to gradually decrease over time.
An important note is that America appears to be seeking alternative strategies to maintain economic control. One such strategy is the control of the cryptocurrency market, as evidenced by the Securities and Exchange Commission's approval of spot ETFs for Bitcoin. This move suggests that America is preparing for scenarios where it may no longer be able to exert direct control over the dollar's value.
Disclaimer:
This is not trading advice. Please conduct your own research and consult with financial experts before making any trading decisions.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.