The latest CFTC report shows an extraordinarily high net long US dollar open interest in the futures markets…[which] is starting to increasingly look like a “crowded trade”. That makes the dollar quite vulnerable to a downside correction. [As such,] any hint of incremental monetary easing by the Fed that involves balance sheet expansion could force a violent reversal….Words: 410
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The article goes on to say, in part:
As one would expect this resulted in a tremendous (5%) rally in USD against major currencies in May [see chart below].
Such a historically high long USD positioning in the futures markets is starting to increasingly look like a “crowded trade”. That makes the dollar quite vulnerable to a downside correction. Any hint of incremental monetary easing by the Fed that involves balance sheet expansion could force a violent reversal (such action could be adding to the dollar supply). Ironically a material action by the ECB or even the PBoC could do the same by making “risk assets” more appealing.
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Long the US dollar is clearly a good position to be in from a fundamental perspective given the global slowdown…[That being said,] the technicals from the CFTC report tell us otherwise. Other technical indicators may be pointing to the US dollar being overbought as well [and] this is particularly true given a rapid increase (from 10% of volume in 2010 to 18% recently) of retail currency traders (retail aggregators) who are known to pile into the same trade (usually late in the game) and then panic.
*http://soberlook.com/2012/06/long-usd-increasingly-looks-like.html?utm_source=BP_recent (To access the original article please copy the URL and paste it into your browser.)
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