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CURRENCY ANALYSIS

The U.S. Dollar into 2015

Long-term Trend Remains Higher

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Our annual medium-term and long-term outlooks have been the industry standard for two decades through almost every type of market.  We are forecasting a volatile rally in the U.S. Dollar into 2015 as the medium-term corrective decline comes to a conclusion. Only the USD/CHF, the most proactive currency of the majors, continues to teeter on the edge.

EUR/USD Outlook

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Over the last six years, we have stressed the 7 year cycle that the EUR/USD has been developing. Our long-term forecast has continued to stress a top in the EUR/USD in 2009, and continue to forecast the subsequent decline to 1.1555 through March 2014. We are forecasting another weak corrective rally to retest 1.2790 into June 2014 before resuming the final decline to .9890 strong long-term support through March 2015.

In order to protect investors, we continue to focus on where risk management would terminate our long-term bullish forecast for the EUR/USD. We continue to believe that only a monthly close [ in January or any month thereafter to avoid “Holiday December” ] back above 1.3725 would terminate our bullish forecast, and result in a rally in EUR/USD to 1.4470 over the subsequent six months in a higher volatile range view of [ 1.2790 – 1.4470 ] into 2015.

GBP/USD Outlook

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GBP/USD has been technically medium-term neutral for five years, in an increasingly neutral, broad, long-term outlook. The massive wedge formation of the last 30 years has now tightened relatively to [1.4170 – 2.0245]. Although the beginnings of this broad ranging wedge have only been experienced by the very long-standing members of the financial community like myself, the post- 2007/2008 plunge has resulted in an ever more neutral long-term momentum. We are forecasting only a weak further retest of 1.6470 weak long-term resistance into January 2014 before a gradual decline to retest 1.4230 into March 2015 in a neutral/bearish medium-term outlook over the next 16 months. Only a monthly close back above 1.6380 close [ in January or any month thereafter to avoid “Holiday December” ] would avert the forecast gradual decline to 1.4230 and result in a weak rally to 1.7045 strong long-term resistance over the subsequent six months.

NOTE: EUR/GBP is forecast to decline to .7030 over the next 16 months.

USD/JPY Outlook

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The decline in USD/JPY to 75.55 in late 2011 produced the strongest medium-term and long-term divergences of the previous ten years. This rare but very significant occurrence that we have stressed for the last two years has begun to produce the forecast long-term rally in USD/JPY. We continue to forecast a rally to 107.15 through early 2014, and continue to forecast a further gradual rally to 118.80 through May 2014. We are forecasting a subsequent broad medium-term consolidation to ensue through March 2015 [96.45 – 118.80]. As we discussed in the above two forecasts, for risk management purposes, our long-term outlook would only change if there was a monthly close back below 96.80 [ in January or any month thereafter to avoid “Holiday December” ]. Only this monthly close would terminate the forecast rally and result in a broad neutral medium-term outlook [87.10 – 107.15] over the subsequent year.

NOTE:  EUR/JPY is at very strong long-term resistance at 141.05, still with bullish long-term momentum. We are forecasting a further rally to 148.10 into March 2014, then a broad, medium-term consolidation [123.30 – 148.10] into March 2015.

USD/CHF Outlook

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Since the days of trading currencies interbank through the 1980’s and early 1990’s, USD/CHF has always been my barometer for imminent changes to the U.S. Dollar. It is because of this respect for USD/CHF that I am presenting the only threat to the bullish outlook for the U.S. Dollar. After the rally to .9970 in July 2012 from the .7070 extreme low, the subsequent 12 months of sideways consolidation only left the long-term technicals neutral from bearish. We are also eroding the long-term technicals for the last three months within neutral/bullish, leaving USD/CHF at the .8890 critical monthly close. We continue to forecast a rally in USD/CHF to 1.0525 through May 2014. We are forecasting a subsequent strong rally to 1.3085 into January 2015 in our ongoing long-term bullish outlook. Only a monthly close below .8890 at the end of January or later would terminate the forecast rally and commence a decline to .8240 strong long-term support over the subsequent five months.

NOTE: EUR/CHF, the secondary but important directional indicator to USD/CHF, is now resting also at the critical monthly close, in this case 1.2230. We are forecasting a rally to 1.2650 through March 2014 in a neutral/bullish medium-term outlook. Only a monthly close below 1.2230 would terminate the forecast rally and result in a broad neutral/bearish medium-term outlook [1.1740 – 1.2390] over the subsequent six months.

In summary, we continue to be bullish on the U.S Dollar for the next 15 months. EUR/USD, GBP/USD, and USD/JPY are bullish in the forecast multi-year trend to come. Our only concern is USD/CHF, which continues to look residually weak after the corrective decline to .8890. Good luck and good trading!

Keith Raphael