Huge news from Switzerland this morning as they have decided to decouple the Franc from the Euro to end the three year-old experiment. I can't understand all the reasons why they orginally established the link and not sure why they are decoupling now. Obviously, its not a vote of confidence for the Euro and their German-run central bank.
But from a technical standpoint, it means something more to the USD. The USD has experienced a parabolic rise over the past year. And anyone familiar with markets knows how parabolic rises play out - Eventually they crash...everytime, no exceptions. According to my representations of the parabolic curve, which could be drawn incorrectly, today's currency actions should cause the USD to break down below the parabolic curve that was orginally established in November of 2013. The following is a chart of the USD index and the parabolic curve it has carved out. Once the low from 1/15/15 is taken out, I'll get more bearish on the USD.
After the curve is pierced and the 1/15/15 low is taken out, I'll be looking for the USD index to establish a lower low and lower high. This would provide me with confirmation the curved is valid and been violated.
While the USD has been a shining star the past 14 months, its performance in the past 14 years has been very poor. Its down nearly 24% from its 2001 all-time highs. And of course, Gold, the oldest of all currencies, has appreciated nearly 500% against the USD during this span. The price action for the USD from 2001 through early 2008 was clearly constructive meaning it is part of a larger market trend. The recovery from 2008 through now also appears corrective and not constructive. The overlapping price waves are the most obvious clue. So if this analysis is correct, the USD should decline signficantly over the next 6 - 7 years. We believe during this phase the USD will likely loses its status as the world's de factor reserve currency. This view is not popular and certainly not something we hope happens but given all the technical and fundamental evidence, we just don't see an alternative. We hope we are incorrect in our views but we plan on taking the appropriate measures to insure against it if we are correct.