The world is in turmoil since the start of the Global Financial Crisis in 2008 which was followed by increased debt levels, post-pandemic economic difficulties, plus even more debt, increases in commodity prices and recently, a pick-up in international war. These important driving forces have a long-term impact on individual countries, their economic activities and their currencies.
When analyzing the higher timeframe charts a year ago (the beginning of 2022), I was struck by the agglomeration in the number of visual chart patterns that had formed on the Monthly charts. These multi-bar, and hence, multi-year, patterns have the capacity to store a lot of energy followed by explosive energy releases in trend direction. Without a doubt, and based on the patterns, we have just recently entered a decade of the Big Currency Shifts!
This coming decade is characterized by Big Shifts in money flows from weak into strong currencies. How do I know? The patterns tell the story! Trend direction, price targets, the duration of the explosive move, plus the characteristic of the move are all determined by the pattern itself well before the move occurs.
And the patterns are showing big moves ahead for various currencies, indeed.
Higher timeframe pattern analysis allows us to identify the Strongest and Weakest Currencies over the next 10 to 15 years. The list below is derived from analyzing Monthly chart patterns. They identify relative strength and relative weakness of individual currencies.
How do these strong and weak currencies make sense from a fundamental perspective?
The Top 3 strongest currencies are commodity-based currencies and that indicates that commodity prices should go up for many years to come (this is in line with my big-picture view of a Commodity Super Cycle). The fourth Top Currency, the Swiss Franc (CHF), is a safe harbor currency, especially for Europeans. We could already identify CHF strength by the pattern over a year ago even before the Ukraine war broke out. It was clear that some important geopolitical event was brewing in Europe that would drive capital into the Swissy.
The weakest currency of all has been indicated to be the Japanese Yen (JPY). And it sure was in 2022 against all other currencies. JPY weakness coincides with Japan being by far the highest indebted country in the industrialized world (debt-to-GDP ratio: 264%). A fully grown-up Sovereign Debt crisis might be on the horizon. During the last months of 2022 we already saw how interest rates on government debt were climbing considerably higher despite intense government interventions.
The weakness of both the GBP and the EUR can clearly be explained by the countries’ closeness to the geopolitical events of war related to Ukraine. Both currencies started to drop in value at the start of military actions (March 2022).
The situation of the USD is a bit more complex as it shows opposing driving forces. The US is a highly indebted country, but as well the dollar is the global safe harbor currency. Over the last year, the USD gained in value due to geopolitical events (war). Apparently, the safe harbor component drove more money into the USD than the amount of money that leaves the USD out of fear of government debts.
When combining a strong currency with a weak currency, you get a clear trend. Expect strong, volatile and sustained trends that gain momentum over time. We are talking here about trends going “exponential”. While such a market environment can be intimidating for the unprepared and inexperienced trader, it represents a trader’s dream for others. Why? With a higher timeframe trend going “vertical”, all lower timeframes will be nicely aligned in strong trends, too.
This produces a strong market responsiveness with a big number of visual price patterns to emerge on all timeframes lower than the Monthly chart (e.g. Daily, 240min, 60min down to the 15min, 5min and the 1min chart). The experienced trader will be able to get into a big Monthly move based on a lower timeframe, super-low-risk idea while riding the overall higher timeframe trend (e.g. getting in on 5min pattern and riding the Monthly trend move). A useful technique is the transitioning of a day trade into a swing trade with the intention to stay in and reap the profits for ideally weeks or even months.
To give you a visual example, such a big move occurred during the year 2022 with the Japanese Yen (JPY). Unfortunately, when such a move happens, most traders remain confused and overwhelmed. They just do not understand what is going on. Their eyes are glued to the screen, wondering what to do. Let’s check it out and see how the USDJPY currency pair did after we discussed it during a VTI webinar last February 2022. We actually discussed the Big Move well in advance.
This is a Monthly chart pattern Long, based on the Busted Breakout pattern. The S1 pattern is a breakout failure system that uses prior highs as levels to run for stops of those trapped traders that are wrongly positioned (here: the Shorts). A lot of energy is stored in this six-year-long pattern and it offered the opportunity for an explosive move higher.
What came out of this pattern is a big and spectacular move – a Stop-Run Move – taking out the SRLs (Stop-Run Levels) that the pattern offered. The prior Momentum Move (see light green arrow) layed out the target and indicated the characteristic of the move to come—a strong move composed of big green bars inter-mixed with just a few small red bars.
This example shows the power of multi-bar visual price action pattern patterns. We should see more similar explosive moves occur over the years to come with other currencies.
The Monthly chart of GBPNZD is a combination of the GBP (a weak currency) with a strong currency, the NZD. Combining both gives you the potential for a strong down trend. Here, it basically means that money flows out of the GBP (probably due to an increase in geopolitical tensions tied to Ukraine) into the NZD (commodity-based currency). Usually, when commodity prices increase, the Kiwi (NZD) is doing well as money flows into the currency.
From a charting perspective, GBPNZD offers a special charting setup, showing four short patterns in a row: an S1 (see entry with first arrow), followed by another S1 (see second arrow), followed by an S1 Weekly (third arrow) and finally an S2 (fourth arrow). This is a situation of quadruple pressure down with each pattern adding more energy into the chart. Thus, a lot of energy is stored for an explosive move lower. The trigger should be the break of the last lower price wick. If this wick finally breaks lower, buckle up! GBPNZD might lose half of its value within a short time.
Overall, looking at the Monthly chart patterns, a sustained period of big price advances of FX pairs combining strong with weak currencies can be expected for an extended period of time. Last year can be marked as the starting shot for the Big Currency Shifts lasting well into the year 2035.
Does this mean we should focus our trading on the higher timeframes only? No. Not at all. The higher timeframe patterns provide fantastic long-term bullish momentum. This allows to swing trade and go for BigR-multiples when trading a lower timeframe pattern.
Living and trading during times of the Big Currency Shifts is not only a challenge but can be very rewarding too. During the next 10-15 years we should see big moves in the Forex market.
Do you want to learn more about the multi-bar visual price patterns that tell the story?
Do you want to be part of the next big stop-run move for BigR-Multiples?
PS: For more detailed information watch my VTI webinar (Jan 2023) about the “Big Currency Shifts & the Main Trends 2023“!
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