The “Bull market” and the “Bear market” are three distinct periods that can occur in a currency pair. They each represent a different stage of a currency’s price performance, as well as a point of inflection. The first “Bull Market” for the USD/JPY, followed by the USDCAD breakout and back to its downtrend; the second “Bear Market” for USD/AUD, followed by a major rally in AUD/USD; and finally the USDCAD breakout and its subsequent fall to its recent low.
It is generally acknowledged that the USD/JPY, USDCAD and AUDUSD will “go down” at the end of any “Bull Market” in USD/JPY, USDCAD and AUDUSD. But where will the USD/AUD breakout and fall?
Interestingly, the “bull” has to do with the supply and demand dynamic of USD/AUD and USD/JPY. When the USD/JPY and USD/AUD begin the first “Bull Market” or surge, the USD/JPY starts from “weak supply” and the USD/AUD starts from “strong demand”. Strong demand means that people are buying up large quantities of the underlying currency, with it still undervalued. Weak supply, on the other hand, means that it is selling for its face value at the time.
So the price of the USD/JPY rises as the spot foreign exchange market rises, while the USD/AUD rises as the spot foreign exchange market falls. When the “Bull Market” ends, the USD/JPY will be in strong demand. As it gets out of this strong demand, it will get weaker, but the “demand” will not end and it will still be the strongest currency in the world.
In contrast, when the “Bull Market” ends, the USD/AUD will be in strong demand. So the price of the AUD will continue to decline, but the demand will not end, and it will remain the strongest currency in the world until it reaches or surpasses the dollar’s current spot price.
A similar dynamic applies in the foreign exchange market between the USDCAD and AUDUSD. If the AUDUSD (US Dollar/British Pound) begins its first “Bull Market”, the AUDUSD will experience strong demand at the time, but the USD/GBPUSD will experience strong supply, and therefore strong demand.
As the “Bull Market” ends, the USD/GBPUSD will start from a weak supply but will experience strong demand. So it will rise but will not reach the dollar’s current spot price.
Like the USD/JPY, the AUDUSD and the USDCAD will enter into a “Bull Market” or surge, but the AUDUSD will be in stronger demand, whereas the USDCAD will start from a weak supply, but will experience strong demand. So, it will begin a Bull Market.
There is only one period in which the USD/AUD will make a major rally and enter a “Bear Market” – it will enter into a “Bear Market” after it begins its first “Bull Market”. But in the case of AUDUSD, USDCAD and GBPUSD, the USDCAD will initially enter into a “Bull Market”, and the AUDUSD will be in strong demand at the time, so it will experience strong supply and weak demand.
At the time of the first “Bull Market”, the USD/AUD will be in strong demand. But when the “Bull Market” ends, the USD/AUD will be in strong demand, but the USD/GBPUSD will experience weak supply and strong demand.
So when you watch the price action on a spot foreign exchange market, try to remember what the spot price is worth now, and what the spot price was worth before the first “Bull Market”Bear Market” began. This will help you interpret when the USD/AUD and the USD/GBPUSD will go down, and when they will begin their “Bull Market Sizes”. and “Bear Market Squeezes”.