The trend is your friend
I'm seeing more and more articles and reports highlighting that US dollar shorts are crowded and overdone. That alone means were probably nowhere near the extreme.
The worries are based on sentiment. For instance, the recent BOE fund manager survey showed the short-USD is one of the most-crowded trades and there's a decent dollar-short in the weekly CFTC data.
I think all this misses how the FX market works. It's not a speculative market, positioning doesn't matter that much. Real money flows are what moves the market and all the money that's piled into dollars for years is trickling out and it's for good reason. The ability to borrow at near 0% in dollars and invest in emerging markets or cheaper global markets is wildly compelling.
The reality is that 600 pips ago, the euro was as crowded as it is now and there's no reason to step in front of it. Weekly chart of EUR/USD:
It's the same thing across the board. Pick a chart and it's likely broken out against the dollar.
On top of that, it looks like we're in the early innings of a huge bull market in commodities as spending ramps up coming out of the pandemic.
I can understand looking for a dip in the dollar but that's exactly what came yesterday on the FOMC -- something I predicted in my preview:
There might be a knee-jerk higher in the dollar if no action is included but I think that will be a move to fade.
If dollar bears were going to hit the panic button, it would have been yesterday.
Most importantly, I want to emphasize that in a trending market like USD, there are only two trades: 1) short 2) on the sidelines. Don't fight the trend.
