Peak-Contraction-Trough-Expansion-Growth, are the five cycles of an economic Business Cycle, and each phase of the cycle reflects in an 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 the Usd may be getting sold since the phases of Contraction and Trough have already happened, which means, ahead there is an upward target of sustainable Expansion that may lead to Growth. It will come, it always does, but the relative strength of the U.S. cycle compared to others may not be as robust.
The U.S. is following the phases the same way other regions are, but 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 shorter 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 noted. The killer effects of inflation, coupled with increasing debt levels are weighing heavily on the U.S. business cycle's lifespan.
As the U.S. 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 where the U.S. tries to expand ahead of overseas regions. The real question being how the market prices Usd based debt; any GDP growth will be negated by forward debt valuations, especially if overseas regions are expanding soon after.
The U.K. is dealing with every bit as strong a recession as the U.S., and is seeing consumer confidence levels stripped to the bone. The Euro-zone is suffering an economic slow-down from the effects of the credit crisis and reductions in bank lending. Australia is down-grading overseas debts and absorbing interest rate cuts that were set in an effort to control the Contraction phase. New Zealand put in place a rate reduction campaign in an effort to control the slide from Contraction to Trough. Japan has struggled in their Business Cycle phases, and has set a set of rules that are unique, lead by stagflationary pressures.
All-in-all we are seeing a base in global economics in the Trough phase, and as a consequence of that the value of the Usd may automatically decrease after 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 become empowered by the U.S. consumer, and in the near-term that may be enough to allow them to overtake the U.S. because of far less debt to finance. Those moves will decrease dollar valuations, increase oil prices, increase global inflationary fears, and allow a period of trade to happen where, for the first time in twelve to eighteen months, the dollar finds sellers in strong numbers.
This may turn out to be the start of a distribution phase ahead of more dollars getting sold over the next decade. 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 it will be a technical reflection of a shift in global Business Cycles. The U.S. Expansion cycle historically comes from a sustained period of Usd weakness, and that is what we are about to see it seems.
Whether we like it or not, the signals are here that the markets just cannot get the Usd any higher, it will not go up when other related markets are moving lower. We may have found a near-term swing point, and if oil prices get back above $65 a barrel it may be that 75% of our attention needs to be on short dollar set-ups, following the Business Cycle path.