This is a response to inquiries about our current US dollar outlook and how we use technical price patterns from our Growth Cycle (template available upon request) to benchmark our fundamental expectations.

The US dollar has been in a super-cycle bear market since its 1985 high over 160 as measured by DXY0.  Fundamentals in our forecasting model – globalization-driven purchasing power parity adjustments, especially in US vs. Asian labor, trade and current account imbalances and real interest rate differentials, which we’ve reported in more detail before -- suggest that the US dollar will probably ultimately decline about two-thirds down to ~60.

For the most likely price-time geometry we prefer the simplest chart pattern assumptions using symmetrical extrapolations and interpolations from both super-cycles and sub-cycles.

If the six-to-ten year downtrend ending at "A" (see the left-most blue dotted line ending in a blue ellipse spanning 1991-95) was about a 50% decline, then – from a super-cycle point of view – we believe that it’s reasonable to expect "C" (see the right-most blue dotted line ending in a blue ellipse spanning 2007-11) to be a parallel (price log, time arithmetic) as illustrated.

Similarly, if the downtrend ending at "a" was about a one-third decline (see the upper-most red dotted line from a ~122 high in 2001 to an ~80 low late last December), then -- from a sub-cycle point of view -- we believe that it's reasonable to expect "c" to be a logarithmic parallel as illustrated: another about one-third decline over three to four years into 2008-9.

Naturally, we'll continue to narrow our expectations as further sub-cycles develop to modify and refine our original and ongoing revisions in our pricing expectations.

Also notice that the parallel internal red trend lines span the low to the high in the recent six-month rally, which ended at ~91 in a major resistance area (rose colored rectangle).

© 2005 Bob Bronson
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Bob Bronson
Bronson Capital Markets Research
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