Crowded US dollar trade getting flushed

  1. Anticipation about further CNY strength is creating the sense that China will export deflation
  2. Jittery markets make for a jittery Fed. Market pricing for a Fed Sept hike has fallen to below 40% from 54% a few days ago
  3. US dollar longs are overcrowded and that exaggerates corrections, especially in a thinner Summer market
  4. The market doesn't have a handle on what exactly the CNY depreciation will mean so dollar traders are squaring up
  5. EUR/USD is blowing out stops. Six straight days of gains and a break above the late-July high caught the market offside. Similar story in USD/CHF on the reversal.

None of this is particularly new information compared to this time yesterday but it's a confused market and that's leading to some tail-chasing and exaggerated momentum.

EURUSD daily