DESPITE the current interest rate hike cycle that began in December 2015, the dollar index (DXY) has been on a decline. Since 2017, the Fed has hiked the Fed Funds Rate (FFR) four times, lifting the FFR from 0.75 per cent to 1.75 per cent but the DXY went into a selloff instead.

The DXY has fallen 14 per cent after forming a top at the 103.82 high in January 2017, and we believe the downtrend has only started. The DXY is an index of the US dollar relative to a basket of euro, Japanese yen, pound sterling, Canadian dollar, Swedish krona and Swiss franc.

From a longer-term perspective, the DXY tends to follow a cycle that takes approximately eight years or 98 months to form a new top from the prior top, as shown by the vertical lines. The way we measure the cycle is to pinpoint the major turning point top. Since 1970, the DXY has been following this eight-year cycle faithfully. Four full cycles played out as the DXY fell lower on each occasion ranging from 12 per cent to 42 per cent. At the cyclical top, the DXY tends to form significant bearish price action such as a bearish engulfing bar or shooting star.