Some currency traders and investors like Jim Rogers believe that the U.S. dollar is still in the midst of a massive bull market. They argue that the U.S. dollar's decline since March 2015 is merely a correction and that the U.S. dollar's bull market still has 1-2 years left. I disagree. Many signs indicate that the U.S. dollar's bull market is already over.
Weakening U.S. economy
A big factor that drove the U.S. dollar's bull market from Q2 2014 to Q1 2015 was the strength of the U.S. economy. U.S. economic data was very positive in 2014 while European, Asian, and other economies were deteriorating.
However, the U.S. economy is deteriorating as well now. Although I believe that a recession or bear market is not around the corner, that doesn't mean that the U.S. economy will not continue to deteriorate.
The U.S. dollar's "correction" is too long
If the bulls are correct, then the U.S. dollar has been in a correction since March 2015. Here's why this argument doesn't make sense.
If the U.S. dollar is still in a correction, then this correction will have lasted 7 months and counting! Historically speaking, none of the U.S. dollar's corrections within bull markets lasted this long. Most corrections last up to 4 months.
The following illustrates the U.S. dollar's bull markets in the 1980s and 1990s. As you can see, corrections do not extend beyond half a year.
The U.S. dollar was in a bull market from 1995 to 2001.
- The U.S. dollar began a big correction in August 1997. It made a new high in just 4 months.
- The U.S. dollar began a big and long correction in August 1998. It bottomed 2 months later and promptly rallied back to its old highs.
- The U.S. dollar started a big correction in July 1999. It made a new high in February 2000, a mere 6 months later.
- The U.S. dollar began a big correction in October 2000. It made a low by December and promptly rallied.
The U.S. dollar was in a bull market from 1980 to 1985.
- The USD started a big correction by August 1981. It made a bottom less than 4 months later and promptly went back to its old highs.
- The USD began a correction in November 1982. It bottomed less than 2 months later in January 1983.
Thus, it's obvious that the U.S. dollar's recent bull market is over and is now making a flat top. The U.S. dollar can at most retest its March 2015 highs.
The Euro has been firmly supported by its 200 sma
The Euro has firmly broken above its 200 daily moving average since August 2015. Most 200 daily moving averages aren't very useful indicators. For example, gold, silver, and the S&P 500 frequently make false breakouts and breakdowns around their respective 200 sma's. But not the Euro. The 200 sma is a very effective indicator for determining whether the Euro is in a bull market or a bear market.
History shows us that whenever the Euro breaks above its 200 sma for more than a month, the Euro's bear market is over and its bull market is about to begin.
The following chart illustrates the Euro breaking above its 200 sma right now.
In addition, the Euro's 50 sma has crossed above its 200 sma. This "golden cross" typically characterizes the end of bear markets.