Friday, August 19, 2016
A 'major long-term trend change' in the dollar
One of the biggest stories over the past few years has been the strong dollar.
But that may be about to change, according to the latest technical analysis from Nautilus Investment Research's Tom Leveroni and Shourui Tian.
"The US Dollar Index is poised to signal a major long-term trend change this week," they wrote in a note to clients.
Leveroni and Tian note that in 12 of the 14 times the US Dollar Index crossed below its two-year (100-week) moving average, the index fell three months later.
Notably, the index crossed below its 100-week moving average on Tuesday, according to data from Investing.com.
In the chart below, shared by the duo, the red circles show where the index dipped below the 100-week moving average.
According to data cited by Nautilus, after crossing the 100-week moving average, the index fell by an average of 3.29% over the next three months compared to the typical performance of -0.02% over all three-month periods. A drop of that magnitude would push the index down to 91.91 from its current 94.38.
Nautilus Investment Research
Still, we must emphasize that the past does not predict the future. So the fact that this has happened 12 out of the past 14 times does not necessarily mean that it will happen this time, nor does it mean that it won't happen.
Either way, it's impossible to predict.
Rather, it's merely interesting to take a look at what happened when such a major threshold was crossed in the past.