From the desk of Tom Bruni @BruniCharting
Thanks to everyone who participated in this week’s Mystery Chart, as always. Most saw that I was doing it this week and didn’t even bother to try guessing, simply stating that they were buyers of this massive base breakout on any pullbacks.
Here’s the chart of US Dollar/Norwegian Krone, which recently broke out of a nearly two-decade-long base to new all-time highs. From a structural perspective, there’s no reason not to be buying any weakness towards 9.50 with an upside target of 12.40.
Click on the chart to enlarge view.
But…that’s not the primary purpose of this post. Great trade idea, but let’s see what other lessons this chart can help us learn.
The Dollar Index has been a hot mess for the last 5 years, frustrating speculators on both sides of the tape.
The problem is, The Dollar Index is 60% Euro and doesn’t include a lot of other major currencies, so maybe that perspective on “The Dollar” doesn’t make much sense. Instead, maybe we should treat each pair on its own merits and then use a “weight of the evidence” approach to say, is there more global demand for this currency or is there more global supply?
Let’s give it a shot? In the table below I look at the US Dollar relative to 21 different major currencies. For the purposes of this table, we’re looking at weekly charts going back as far as we can to identify the real structural trend. AND we’re looking at each with the US Dollar in the numerator so we can make an apples to apples comparison between them all.
What we see from the table is that there are far more uptrends and sideways consolidations following uptrends, than there are downtrends and sideways consolidations following downtrends.
So is there more demand for US Dollars globally or is there more supply of US Dollars globally? Despite the unclear message from the Dollar Index over the last 5 years or so…the weight of the evidence continues to suggest that there’s more demand.*
And we can apply this same approach across currencies.
Look at the New Zealand Dollar relative to these 19 currencies mentioned above and tell me if there are more uptrends or downtrends. I’ll give you a hint, it’s downtrends. Almost all of them. So what does that tell us? There is a global lack of demand for New Zealand Dollars…and that’s not a trend that’s going to turn overnight.
Go look at the Swiss Franc relative to a bunch of other currencies. You’re gonna find a lot more uptrends than down or sideways trends. There is clearly a global demand for Swiss Francs.
Central Banks, Governments, Corporations. The big boys with real money that are moving the currency markets do not care about the day to day movements, they care about the “cruise ship” type trends that are formed by quarters and years of buying or selling.
And right now, the slow-moving “cruise ship” trends continue to point in the direction of a higher US Dollar. So let’s keep that in mind next time we’re looking at the seemingly mindless pattern that the Dollar Index and Euro/USD have been in for months now.If you enjoyed this post and want access to our premium research, start your 30-day risk-free trial or sign up for our “Free Chart of the Week” to receive more free research like this.
Thanks for reading and please let us know if you have any questions!
*I know, I know, these Currencies are not all created equally. A larger weighting should be given to something like the Euro that is used by more countries, entities, etc. But that’s not the point. My point is to remind broad generalizations like “The Dollar is XYZ” are rarely helpful and that we should focus on the structural trends that are being driven by the market participants who have the capacity/motivation to move them.