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Election years mark an extreme point and the trend seems to change when the United States change government. The Dollar rises against the Euro when the United States are led by a Democrat and the opposite when a Republican is in charge.
This chart graphs the Euro - Dollar exchange rate in late 2008 with my forecasts:
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The brutal downturn this year does not seem healthy, graphically speaking. We do not think that this marks the beginning of a trend that would last several years. It is a bit reminiscent of the situation in 1991. One might say that the Euro - Dollar exchange rate is likely to remain in the monthly Bollinger Bands for a long time. However, a rebound seems likely to me. What remains to be seen is just how far ...
The rate has fluctuated in recent years, as we anticipated against an upward bias, while the Euro - Dollar exchange rate instead showed a downward trend.
This is the updated graph (note that the Dollar – Euro trend allows us to easily visualize the movements of the Dollar - the curve climbs when the Dollar strengthens)
For these four years we have debated on two scenarios:
- An increase in the Dollar against the Euro.
- The trend continues to evolve on the same levels.
We prefer the first scenario because:
- The low points of the USD / EUR are increasingly high. Same with the points above (Dow Theory).
- The consolidation phase now lasts for 4 years
In terms of cons, we think the Euro Dollar will struggle to pass the 1.0700/1.1000
Analysis of a long-term graph is quite difficult this year mainly because of the large monthly volatility.
