QUESTION: Reviewing the private blog, at the end of 2016 on December 31 you wrote “When it comes to the Euro, the Major Yearly Bearish Reversal lies at 10365 and the intraday low for 2016 was 10352 closing the year at 10513. This too warns that we may not be ready to meltdown just yet.” You called for the Euro rally into the German elections but it did not reach the 125 and stopped at 120. Then for the close of 2017 you wrote on the private blog: “On our Yearly Models, we have had THREE Directional Change targets all back-to-back from 2017 to 2019. From a technical perspective, we achieved an outside reversals to the upside in the Euro making 2017 the low but closing above the 2016 high. We never quite reached our target in the 125 level, so it appears we still have time to do this here in the coming New Year.” You also wrote: The year-end signals we achieve in the Euro for the closing of 2017 will be significant for the overall tone of what is to come reflecting how fast things will develop. Our models are reflecting a sharp rise in volatility in 2018 as well.”

My question is this. With three yearly directional changes from 17 to 19, I assume this means choppiness. Your volatility models show a sharp rise in 2018 as well. Do you think we can really reach the 128 or 135-140 level by March?

HS

ANSWER: In order to create the greatest amount of chaos, you always have to swing to extremes. If we are going to really create total havoc that will bring down the monetary system as we head into 2021 and force some sort of a new Bretton Woods, the only way to do that is a dollar rally. A dollar decline means sovereign debts issued by other nations in dollars will be devalued encouraging them to issue more. The way to break the system is only a dollar rally which forced Roosevelt to devalue the dollar back in 1934 and it forced the Plaza Accord in 1985 that gave birth to the G5. The US always wants a lower dollar to reduce the trade deficit. This is Trump’s policy as well. The market will NOT be that forgiving.

A rising Euro will increase the debt burden in Europe and deflation reducing exports. Ending QE by the ECB will result in rising interest rates. But that is always a bell curve. What people constantly get wrong is the classic one-dimensional analysis. They assume whatever trend is in motion will remain in motion. Rising interest rates will always at first support a currency as should be expected with the Euro short-term. However, that will be the trend provided the confidence in government remains. If confidence collapses, then suddenly the interest rates will continue to rise exponentially and the currency will collapse along with asset values.

The high in US interest rates took place in 1899, It was 1896 when J.P. Morgan had to bail out the US Treasury because they were broke. Following America gaining control of the Philippines as part of the ending of the Spanish-American War, in 1899 the Philippines declared war against the United States requiring independence from America. The war continued until 1902 when the Philippine President Emilio Aguinaldo surrendered. In 1916, the United States granted the Philippines autonomy and promised eventual self-government, which came in 1934. In 1946, following World War II, the Philippines was granted full independence. The fact that the USA was at war with Spain led to questions of its ability to cover its finances. The USA nearly doubled the output of $20 gold coins during 1898 and 1899 to pay for expenses of the war. When confidence declined, this is when we see the highest levels of interest rates.

This is what will happen in Europe. It is all depending upon the fleeting whims of confidence. Only a complete fool thinks that a trend set for a few days will continue forever. Nevertheless, the first level is the technical resistance just below 124. Then we have 125 and 12890. These remain possible and will help to create the impression the euro will rally and the dollar will collapse. That will suck everyone in and then you have the stage set for the slingshot in the opposite direction.

We should see the flurry build once the Downtrend Line is exceeded. Then you will hear the big sucking sound bringing in all the dollar haters and we then set the stage for crazier choppy trends.

This is NOT going to be an easy people between 2018 and 2021. So hang on to your socks. This will be a very interesting time. The key is to survive it.

QUESTION: Mr. Armstrong; You have been calling for the dollar to decline against the Euro and it should test the 125 level. Do you see the dollar continuing to decline which then breaks the back of Europe with deflation and then everything flips?

WK

ANSWER: Last year was an outside reversal to the upside meaning it made a new low since 2008 reaching 10341 and then closed above the 2016 high. That confirmed we should see a lower dollar in 2018 and our target in the 125 level has been slow in coming. There is no reversal of fortune without a closing above 140. Our minimum target was 12570 with the next forming at 12890. Thereafter, we reach the major resistance in the 135-140 zone. The technical resistance begins just shy of 124.

The Euro is rallying because the ECB is seen to be abandoning its QE program which has failed. The rush to the Euro is the assumption that with higher rates, at last money will come home. We still have a minefield of political issues. Creditors are dissatisfied with the lack of austerity in Greece as well as Italy. Our critical turning point remains March 2018.

The crisis yet to unfold is will there be buyers of European debt to take up what the ECB has been buying? This is part of our forecast with rising rates and the more they rise the worse the budget will get. There is just no way out of this crisis without serious reform. So people rushing into the Euro thinking this is a turn-around long-term for the dollar will be shown that the old saying fools rush in where wise men never go will be carved in stone.

So for now, we still await the test of 125-128.

TIME is more than just money; it’s absolutely everything and then some! Personal opinion just utterly fails because we are all human. Markets routinely do what the majority never expects. That is their function. They mutate like a virus always changing its genetic code to defeat medicine, or in this case, traders. Back on November 30th, 2017, I explained on the private blog: “We must respect that exceeding the November high now in December on a sustained basis, points to a January high. If we pull back, then January will be a low and then watch out for a sharp rally into March.”

TIME is the very fabric of the universe and probably the most misunderstood element of all. In physics, the relativity of simultaneity is the concept that baffles many. The question becomes, do two distant events actually take place simultaneously? Therefore, the question whether two spatially separated events occur at the same TIME is recognized to be far from absolute. It is “relative” depending on the observer’s reference frame. This becomes incredibly important in terms of forecasting the world markets.

To grasp what our model is really doing one must look at TIME and EVENTS more in the perspective of turning points – not specific events. Once you understand we are forecasting turning points on the TIME horizon, not specific events, you will begin to make a leap forward into a new world of understanding TIME.

Specific events on the horizon become easy for forecast based upon the trend in motion relative to TIME. When trends reach that events horizon in time, then a specific high or low is easily ascertained. Right now, we are in the throes of a major breakout and a characteristic of Vertical Markets has been what we call the Cycle Inversion process. Normally, turning points unfold in opposite pairs. So a November high would traditionally be followed by a January low. Merely exceeding the November high on a closing basis during December identified the continued rally into the next target being January 2018 warning we were (1) dealing with a Cycle Inversion, and (2) a Vertical Market that is going to be very difficult to trade for most people.

It is paramount that we understand how Vertical Markets function.