As the industry evolves and more and institutional investors enter the space, it becomes paramount that we understand the global macro investing landscape. As the capital from around the globe begins to invest in cryptocurrencies, we will begin to see a higher correlation between Bitcoin and the major traditional markets. This includes the dollar, stocks, bonds, and gold etc. Right now, the correlations have been very minimal but this will change as the larger institutional portfolios begin to allocate to digital assets.
Why it is also important to pay attention to the global macro landscape?
Long-term cycles dominate all markets. Capital ebbs and flows. It competes between certain asset classes and within certain areas of the world. Capital chases and tends to concentrate in markets and investments that are performing well. Of course these trends reverse and the cycle or boom ends. A new cycle begins.
Bitcoin by far has been the best performing asset on the planet the last several years.
We do not expect a change long-term in this current bull cycle. See our recent article ( Bitcoin Was Never In A Long-term Bear Market) . The key currency in all of global macro has been the dollar. It has been in an extended strong trend. Since the dollar is the world’s reserve currency and the majority of assets around the world are priced in dollars, it is the most significant factor in all of macro. Get the direction of the dollar right, you will tend to be correct in many other markets as well. We lead with the dollar on all of our big picture directional analysis.
Let’s take a closer look at the dollar.
It is our view that this week we’ve finally seen a major turning point in the Dollar longer-term. We have been very bullish and constructive on the dollar since the new trend started in 2014. Using a top down directional approach to markets, since 2014 the dollar has entered a brand new bull market. It took out the prior series of long-term lower-highs that were in place going back to 2001. We can see that 2013 was a year of tight consolidation followed by a clear breakout on the upside above the descending trendline.
This was when we issued our first long-term bull call on the dollar and aggressively established core long-term long positions. We then saw price move up dramatically. In a relatively short amount of time, price on the DXY climbed from the 83 area and peaked into March of 2015 with a high of 100.39. This intra-month high came on a perfect 8.6 cycle count from the breakout. The 8.6 unit frequency is a major cycle frequency as it is a derivative of Pi (the perfect cycle). We find the global macro world business cycle is on this same 8.6 year interval.
Now, since the start of 2017, the dollar has been on a down cycle.
This is where the majority of market participants and the usual perma-bears always call for a crash in the dollar. They have been more vocal and getting heavier short. This was the correct side of the trend to be on for all of 2017. That cycle appears to have ended as we see price now bottoming and starting a new cycle. This bottom came with two 8.6 month cycles down from the highs. The next charts will show how the Pi Cycle line held on the weekly timeframe.
We also need to keep in mind these lows come with an extreme amount of dollar bearishness. The crowded short position was at massive record levels with everyone on one side of the ship. Most were short the dollar and long the Euro. Our call was that consensus is wrong at the exact place where our model has a cyclical turn and where we wanted to begin to go long dollars. Here’s a look at the CFTC futures and options positioning. The dollar short position is one the most crowded shorts in recent history.
This is why we have been calling for a turn and bottom in the dollar. Markets tend to move the most violently when the majority are wrong. We think it is an unwinding. If we see more of the same strength in the dollar into next week, this should begin to really put pressure on the bears.
Let’s cover a few of the other timeframes, next being the weekly chart of the dollar.
Here we can see the DXY has held our long-term Pi line (the dotted green line). It is a cyclical concept we use and it did a great job again indicating the current long-term bull market. We can also draw a standard regression channel back several years. The bottom of this channel comes right in line where price has held the last several weeks. This was also the bottom of our long-term Risk-Range per this regression line.
Lastly we want to highlight on the Daily chart the clear breakout from the most recent intermediate-term sideways range trade.
The range for the last several weeks was 88 to 90.5 and this week we finally have a clear breakout, clearing well through 90.5/91 area. This is why we are reaffirming our dollar bottoming call and have increased our core long position significantly this week. On the upside we need to watch the 200 day currently near 92.12. Then also back up by first resistance above at 92.64. Should price exceed those levels then we should see a move back toward our Pi line up at 94.67, also coming in line with resistance from the end of last year at 94.22.
We have been highlighting the DXY, but this index is largely made up of the Euro pairing.
It is important to view the EUR/USD charts as well. It is the opposite direction of the Dollar with a clear breakdown this week of the major 1.2150 area. This area was key on a weekly close this week and it appears we are indeed going to close below this major reversal level in our model. We remain bearish and increased our core short positions on the EURUSD cross as well.
We think this week was a major tone shift in the dollar.
It hit a major cycle turning point and a clear intermediate-term break out in the dollar (breakdown in the Euro). We were long dollars coming into this move and short euros. We added to all these pairs accordingly, increasing our position size and think this is just the start of a much larger bull trend for the dollar and a long-term up cycle.