Get Used to a Range-Bound Dollar

From the Desk of Ian Culley @IanCulley

Gold is outshining the dollar.

The greenback doesn’t know which way to go, as FX markets offer traders little in the way of breakouts.

Instead of reviewing the chopfest, playing devil’s advocate, and weighing the lack of evidence for a near-term directional bias, let’s turn to a trending market for insight into the dollar.

Spoiler alert: It’s shiny, yellow, and trading at new all-time highs.

Yes, I’m referring to Gold.

Gold and the US dollar hold a classic intermarket relationship — an overt negative correlation. 

As I reviewed the charts this weekend, another pattern emerged between the two. 

I decided to offset Gold ahead of the dollar by roughly two to four years. After adjusting the charts, I landed on setting Gold forward by 130 weeks (approximately two-and-a-half years).

And voila:

Now, Gold and the US Dollar Index $DXY appear quite similar. 

I expected these charts to line up, as their inverse relationship creates a give-and-take. But I didn’t anticipate the dollar tracking Gold to this degree.

Gold’s ‘05-‘06 rally preceded the ‘08-’09 dollar rally by roughly two-and-a-half years —  approximately the same period between Gold’s ‘07 to ’08 and the DXY’s 2010 mark-up phases. 

I was impressed. But it doesn’t stop there…

The shiny yellow metal went on a rip-roaring rally from 2009 until its commodity supercycle peak in 2011. 

Fast forward three years and the dollar began to climb — gaining 27%. 

In fact, all three DXY rallies (‘08-’09, ‘14-’15, and ‘21-22) rose roughly 27%:

DXY’s dominant cycle shines crystal clear.

Broad trading ranges — lasting approximately six years — followed the previous dollar rallies.

Based on the past two cycles and Gold’s recent four-year consolidation, I expect a continued DXY chopfest.

Of course, the dollar will still produce explosive swings and ample trading events — eventually. 

But if the greenback rises in the coming months, it’s unlikely to ignite a rally on par with 2022.

-Ian

Thanks for reading.

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