Outline

Cometh the man, cometh the hour.

And yes, the hour is nigh for the USD index. Lets look at what's going on using the data from Macrotrends databse.

The Dollar has formed a 80% of a key bearish pattern called Head & Shoulders.

I believe that o avoid a dollar collapse and to preserve the integrity of the dollar bull run, the dollar must rally past 105.

This fits with a trend mapped out by the previous peaks.

This would keep the uptrend intact and defeat formation of Head & Shoulders.

However, this would also cause untold chaos for equities, bonds and commodities.

Whatever happens here, we're in for a bumpy ride.

How to trade this

I believe that there are two main possible scenarios here.

Scenario 1

Firstly, lets look at the simpler scenario in which a traditional Head & Shoulder formation resolves and the dollar buckles and falls.

I do not believe that this would be the collapse lots of people are predicting as there is a slow moving wave of support which has existed since 2010 moving in from the rear.

So in my view this means that any collapse will be mild and shed around 15% (if you think this is bad then look at the previous dollar collapses which shed around 35% and 28% respectively) as this is where any downmove would run into support.

To play this, simply take a position against the USD index on popular hedges and competitor currencies. Go long on gold and commodities and crypto to start with.

Scenario 2

Scenario 2 is far more complicated.

Firstly, I believe the dollar must attain the 105 level to defeat Head & Shoulders.

However in doing so it would also destroy a downtrend which is over 50 years long.

This would open up the range to the upside giving the USD a possibility of a Y2K style dollar bull run with the maximum for this range sitting around the 113 level.

Now something I noticed looking at this chart was the fact that this seems to have happened before

As you can see from the Early-2000's chart for the USD Index, then we have a very similar Head & Shoulders type formation which is defeated by a strange sideways formation (I used a yellow bar to mark this out) followed by a 2nd rally past 105.

I mark out a similar pattern on both periods to make the point clearer.

And lets have a direct comparison

You will see a very similar pattern unfolding - Rally, pullback, rally, retest, an anaemic sideways move, then a moonshot.

Bear in mind here, that the 2000 rally culminated in a recession as marked by the grey strip.

Moreover, as covered in previous articles, dollar power is a key pressure-point upon foreign debtors, commodities, stocks, the works. So if the dollar does rally past the 105 point into the early noughties era range, then watch out... get ready to short anything denominated in dollars. This includes crypto, competitor currencies (especially the Euro), commodities, stocks, bonds, the works.