Pro Perspectives 4/5/23

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April 5, 2023
 
Let’s revisit the long-term dollar cycles, which we’ve kept an eye on throughout the history of my daily note. 

Since the failure of the Bretton-Woods system through the onset of the Global Financial Crisis, the dollar traded in five distinct cycles – spanning 7.4 years on average.  
As you can see, the era of QE has seemingly distorted these cycles. 
 
Let's call this current cycle, an exceptionally long bull cycle for the dollar.
 
The top was October.  And now with the events of the past month, the fundamental picture for the dollar is clearly negative.  The rate outlook has swung dramatically, from tighter to easier, by year end.  And the dollar's world reserve currency status is simultaneously and opportunistically being challenged.
 
So, if we assume this extraordinarily long bull cycle for the dollar ended in October, we are just five months into a new bear cycle. 
 
It's very, very early.  And the average change in the value of the dollar (in the prior five cycles), from extreme to extreme is > 50%. 
 
So, in this case, this bear cycle would portend a better than 50% decline in the global purchasing power of the dollar (relative to a basket of major currencies).
 
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