Resolution Coming in 2020?
The US dollar has frustrated bulls and bears for the past several years, as it has traded inside a historically narrow range without a clear long term directional bias. However, in both the near term and long term charts, it would appear a larger, secular move is coming.
On the daily chart (above), the dollar has traded within an 18-month channel and is testing rising support for the fourth time. Additionally, rising support coincides with falling support from September, which has now been tested three times. This level is significant, and either the dollar is due for a bounce at this confluence of support, or it will break down here sending a strong, bigger picture signal to markets.
More importantly, if we zoom out to to survey the long term chart (below) covering nearly five decades, price action has been building and coiling into a symmetrical triangle. If prices break to the upside, a very long term secular breakout will commence with powerful deflationary effects domestically and across the globe. If price fails, the lower bound of the channel is in play with potentially all-time lows. While we must account for that possibility of all-time lows technically, it would be hard to imagine the US dollar underperforming global currencies so profoundly given the state of international economies, let alone the domestic and geopolitical consequences of such action.
So while inflation, or even extreme inflation, is likely if the dollar breaks down, it is important to note that the dollar index prices the US dollar relative to other currencies, and not absolutely. A more realistic long term target if the dollar breaks down is 80, where there is significant support. It is a zone where the dollar could set up another run up to falling resistance.
The tip of the symmetrical coil in the chart comes to a point on December 31st, 2020. After several frustrating years for dollar traders, next year should bring a powerful secular resolution.