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#1 03-12-2020 16:08:53

Admin & Trader
From: Paris - France
Registered: 21-12-2009
Posts: 3068

USD: a record number of short bets on the dollar

USD: a record number of short bets on the dollar

The US dollar is melting day by day. Never in recent history has the dollar's trend been as strong as it is now.

In fact, the positioning of asset managers against the USD is so extreme that it has reached record levels. Looking at the below chart, this extreme positioning has little or no comparison with what happened in the aftermath of the great financial crisis of 2008. In other words, the easing this year far exceeds the easing in the years following the great financial crisis.

The theme of reflation dominates

This year has been an unusual one on all fronts. The health crisis has ruined business and government plans and threatens to do the same next year.

For the time being, the reason for the widespread fall of the dollar is the reflation that everyone expects from the United States. In economic terms, reflation refers to economic growth (i.e. an increase in the level of economic output) based on a fiscal or monetary stimulus. Note the word 'or'. In this case, the scale of the crisis is such that it is referred to as 'fiscal and monetary stimulus' at the same time. Thus, the US dollar reaches a new low every day.

The EUR/USD is the only pair that says it all about the dollar's decline. It has just crossed the 1.20 mark, and it seems that it has freed itself from all the frustrations accumulated when it was below. It hasn't looked back since, and at the time of writing it is trading at 1.2154 without any major setbacks in the last 48 hours.

The downtrend in the dollar is also visible in other pairs. The USD/CHF has given way to the 0.90 level - an important milestone for the Swiss National Bank. Even gold has recovered from its lows as a result of the dollar's weakness.

As today we get the Non-Farm Payroll report, there is a growing sense that the market is pushing dollar bulls towards the end of 2020. As a reminder, on a long position, the dollar and the market continues to sell it, at the moment the market triggers the stop, the short position is automatically squared off by a long position. Specifically, being short feeds the fire as shorts end up buying at extreme levels just to cover their losses.

Whether or not the trend continues remains to be seen. Its strength already tells us what the market is expecting next year: more fiscal AND monetary stimulus from the US.

"Anything worth having is worth going for - all the way." - J.R. Ewing



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