The Dollar Could Be Starting a Multiyear Bear Market


The U.S. dollar's plunge has been one of the major financial stories of 2017…   The dollar soared from 2011 to 2016. But things changed this year.   The greenback recently hit its lowest level since early 2015. It has now clearly broken down from a multiyear uptrend. And history says this downtrend will likely continue.   The dollar could continue falling for another two years.   Let me explain…   Major currencies tend to move glacially. They have slow, long-term moves higher or lower… not drastic crashes or spikes.   So this year's decline isn't something that happens often. The dollar is down 9% in just the first eight months of the year – a massive fall for a major currency.   This is also a major break in the dollar's previous trend. Take a look…  
This quick fall could be a sign of a much larger downtrend.   History says that this kind of decline – 9%-plus in eight months – means a new downtrend is here. And that's a bad sign for the dollar over the next few months… and potentially years.   Since 1980, similar quick dollar declines led to further declines over the next two years. The table below shows the full details. Take a look…  

  6-Month 1-Year 2-Year
After extreme -1.6% -4.7% -7.0%
All periods 0.1% 0.2% 0.4%

Like many currencies, the dollar hasn't moved much over the long term. But large declines tend to lead to further falls.   After 9%-plus declines like we saw recently, the dollar went on to fall 1.6% in six months, 4.7% in one year, and 7% over the next two years.   That may not sound like much… But it's a huge fall for a world currency.   More important, this signal tells us that the dollar's decline will likely continue… potentially for years.   Now, in the short term, the dollar is overly hated by investors. And as contrarians, we know that could mean a bounce in the near future. But that's the short-term picture…   Today, the long-term trend is clearly down… And the recent decline we've seen points to more losses ahead, based on history.   This isn't all bad news… If we see a multiyear fall in the dollar, one way to profit is through foreign stocks. A falling dollar is a tailwind for stocks outside the U.S.   Gold also typically soars when the dollar falls. The metal has already entered a solid uptrend.   In any case, the greenback's decline could just be getting started. Don't be surprised if this is the beginning of a multiyear downtrend.   Good investing,   Brett Eversole

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