Thomas Schroeder, the strategist who called the top of China’s stock market in April, expects the dollar to wobble before resuming its rally in 2016 when he sees it reaching a 14-year peak.
Dollar bulls are set to profit the most from bets against the euro and emerging-market currencies, including the Philippine peso, Indian rupee and Israeli shekel, said Schroeder, founder of Chart Partners Group Ltd. in Bangkok, a provider of trading strategies linked to technical analysis. China’s surprise devaluation of the yuan this month and a deepening commodities slump have fueled the worst emerging-market currency rout since the global financial crisis.
At the same time, the dollar’s rally against major developed peers has evaporated as traders reduced the odds that the Federal Reserve will raise interest rates in September. The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, slid 2.8 percent this month to 94.59 at 7:28 a.m. in London on Monday. It climbed 38 percent from a 2011 low to a 12-year high of 100.39 on March 13.
“These runs tend to be from seven to nine years,” Schroeder, who has spent more than two decades poring over charts, said in an interview in Singapore. “We’re 60 percent of the way.”
Even if the dollar gauge breaches support at 94, it will likely find a floor at 92, he said. Support refers to an area on a graph where analysts predict buy orders may be clustered.
The Dollar Index will then climb to 104 this year as traders bet on a December rate hike by the Fed, before descending into a slump that could last for as long as five months, according to Schroeder. The gauge will likely stay above 92 and rally next year toward 120, he said, which would be the highest level since February 2002.
“If it can’t break through 104 on that next big try, then I will become a dollar bear again,” Schroeder said. “But most of my long-term charts say we still have gas left in this.”
Dollar bulls should sell the euro before it weakens to $1.02, a level not seen since 2002, said Schroeder, the former global head of technical research for SG Securities and previously the chief of Asian technical analysis at UBS AG. A break below that level will send it toward 95 cents, he said, from $1.1427. The euro gained 0.5 percent to $1.1442 Monday.
Chart patterns also point to declines in the Philippine peso, rupee and shekel, which have trailed losses in other emerging-market currencies, Schroeder said. The peso and rupee have each dropped about 5 percent against the dollar this year, while the currencies of Brazil, Colombia, Turkey and Malaysia have plunged at least 17 percent.
Against the dollar this year, the Indian currency will drop to 70, the Philippine peso will slide to 49 and the Israeli shekel will weaken to 4.26, Schroeder forecast. The rupee fetched 66.47 Monday, while the peso was at 46.82 and the shekel traded at 3.8880.
“I was very bullish on the Philippines but everyone owns it now,” said Schroeder, who advised investors to sell in April to lock in profits, before Chinese companies in Hong Kong went into freefall. “The pool is getting very small for your long ideas when everyone owns it.”