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Do Not Ignore The Dollar Cycle
Trade Desk Thoughts l TheLFB News l Jul 30 08 l 07:10 EDT l [B]Business Cycles Lead Currency Valuations[/B] Peak- Contraction- Trough- Expansion- Growth, are the five cycles of an economic Business Cycle, and each phase of the cycle reflects in a economic region’s currency value. The cycles run over an average ten to fifteen year period. As we look at the U.S. phase right now we see that the next move from the Trough is into Expansion and that can be lead by economics, sentiment, or a mixture of both. The reasons why or how it all happens can be debated forever, the stark reality is now that the Usd will be getting support from the fact that Peak and Contraction have already happened, and ahead is an upwards target of sustainable Growth. It will come, it always does, but the relative strength of the cycle compared to others may not be as robust. [IMG]http://www.thelfb-forex.com/uploadedImages/Trade_Desk_Thoughts/The_Spot_View/Business%20Cycles.JPG[/IMG] [B]The U.S.[/B] is following the phases the same way as other regions are doing, the difference is that the U.S. is going from boom to bust a lot quicker than other regions; the cycles are getting shallower, and are coming in five to eight year cycles, creating volatility in dollar valuations. The downside of that is that the Usd does not have time to re-establish new values as well as other currencies, and because of global commodities being priced in dollars the quicker cycles can create inflation pressures that are historically stronger than previously seen. The killer effects of inflation, coupled with increasing debt levels are weighing heavily on the U.S. business cycle's lifespan. [B]As the U.S. [/B]moves along its own cycle so the global economies follow theirs, but right now the moves are out of sync; the global Peak phase came at the same time as the U.S. Contraction phase started, and that is now leading to a period to come where the U.S. may expand as other regions now contract. [B]The U.K. [/B]is staring recession in the face, and is seeing consumer confidence levels stripped to the bone. The Euro-zone is suffering an economic slow-down from the effects of an inflated euro and an increase in interest rates. Australia is down-grading overseas debts and absorbing interest rates at 7.25% that were set in an effort to control the Peak phase. New Zealand has started a rate reduction campaign in an effort to control the slide from Peak to Contraction. Japan has struggled in their B.C. phases, and has set a set of rules that are unique, lead by stagflationary pressures. [IMG]http://www.thelfb-forex.com/uploadedImages/Trade_Desk_Thoughts/The_Spot_View/30%20USD.JPG[/IMG] [B]All-in-all[/B] we are seeing a pull-back in global growth from the Peak phase, and as a consequence of that the value of the Usd may automatically increase; the U.S. has already absorbed a lot of Contraction-related bad news. As the U.S. looks to get out of the Trough, the other major pair economic regions may be looking to go into theirs, and in the near-term that may be enough to increase dollar valuations, decrease oil prices, reduce global inflationary fears, and allow a period of trade to happen where, for the first time in twelve to eighteen months, the dollar finds buyers. This may turn out to be nothing more than a distribution phase ahead of more dollars getting sold over the next decade, but in the near-term, history tells us that these Business Cycles have more of an impact on currency valuations than anything else and that is what we are now starting to see reflected on our charts. The four hour cycles, the near-term support and resistance, linear trend-lines, and daily SMA areas are all getting threatened at the same time. If it does break technically it will be a reflection of a shift on global business cycles. [B]Whether we like it or not,[/B] the signals are here that the markets just cannot get the Usd any lower, it will not go down when other related markets are putting it under pressure. We may have found a near-term swing point, and until oil prices get back above $130 a barrel it may be that 75% of our attention needs to be on long dollar set-ups, following the Business Cycle path. [IMG]https://www.thelfb-forex.com/uploadedImages/home_page/20%20vide.jpg[/IMG] [B]Play the Daily Market Video Wrap[/B] [url]http://www.thelfb-forex.com/content.aspx?id=34534[/url] [B]TheLFB[/B] Copyright © 2007 - 2008 TheLFB. All rights reserved.
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