Bullish correction on horizon for US dollar in near term

The Dollar Index (DXY) has been stuck on a declining trend since the start of the year, falling from a high of 103.80 to the current low of 91.62, a drop of 11 per cent over the past eight months. The DXY is an index of the United States dollar relative to a basket of foreign currencies, mainly against the Euro, Japanese yen, pound sterling and Canadian dollar.

From a cyclical point of view, the DXY follows a long-term cycle of 98 months where a cyclical top takes over in between every 98 months, turning the DXY into a prolonged downtrend. With the convincing bearish price action since the start of the year, we can almost ascertain that a long-term top is in place.

The January 2017 high of 103.82 should be the top for the current cycle implying the DXY has transitioned into a long-term downtrend since January 2017. In other words, the current cycle took 94 months to complete while the previous two cycles took 89 months and 92 months to finalise.