Is the short dollar squeeze turning the corner?

Technical Analysis

Author: Justin Low | usd

This is going to be a key question in the FX market this week

As much as the dollar has shown much resilience to start the new year, are we starting to go back to focusing on the Fed put and what that means for the greenback in the larger context of the trading landscape this year?

While there might be some argument that the dollar may not be as dire as it was beforehand, or more so that punters were too optimistic on prospects of other major currencies, it doesn't take away from the fact that the Fed put is still in play.

The technical picture so far to start the new week is telling more of the story:

USD/JPY D1 09-02
USD/JPY looks to have failed to breach its 200-day moving average (blue line) and has now fallen back under 105.00 as we see a bit of a retreat in Treasury yields from the highs yesterday, as the breakout failed to extend further.

In fact, sellers are now in near-term control upon pushing below the key hourly moving averages under the 105.00 level in trading today.

EUR/USD D1 09-02
EUR/USD is also showing a solid bounce upon testing its 100-day moving average (red line) and 50.0 retracement level @ 1.1967-76 at the time on Friday last week.

That is seeing buyers establish a more near-term bullish bias once again today after having broken back above 1.2000 and now targeting a potential break against trendline resistance around 1.2063 as we look towards European trading.

The turn here also comes after CTFC positioning data showed that speculative EUR long positions were trimmed by quite a bit in the past week:

That said, long positions are still elevated relative to the last few years but they have receded from the highs seen back in September last year.

That may suggest that positioning isn't as stretched as before and that's some additional comfort for buyers after having defended key technical levels in EUR/USD.

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