Skip to Content
News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

Free Trading Guides
Subscribe
Please try again
Select

Live Webinar Events

0

Economic Calendar Events

0

Notify me about

Live Webinar Events
Economic Calendar Events

H

High

M

Medium

L

Low
More View More
US Dollar Index Rate Forecast: Hedge Funds Fight Recent Drop

US Dollar Index Rate Forecast: Hedge Funds Fight Recent Drop

Tyler Yell, CMT, Currency Strategist

Share:

US Dollar Index (DXY) Talking Points:

  • US Dollar Index Technical Analysis: Failure to break above 94.20 in Dec. would be worrisome
  • Fear of broad drop to close out the year would heighten on break and close below 92.50
  • Trader Sentiment Highlight from IG UK: EUR/USD bearish bias from retail weakens

The US Dollar surprised Global Markets in December by bucking an 11-year trend and a hearty 2017 forecast that anticipated gains. Over the last 11-years, the US Dollar has gained in December and 13-months ago, institutions were nearly as confident as they get in anticipating further EUR strength and out of the gate, they looked right. The 9% drop over 2017 for the DXY does seem overdone, and some traders are not sure it will last.

Hedge Funds Attempt to Buy Low

A development worth noting though not a guarantee of gains is that hedge funds have noticed the ‘cheap dollar.’ A look at the number of net speculative institutional bets shows one of the largest divergences between the spot dollar index in at least a year.

Traders should note that hedge funds do not have a flawless record. However, the message behind the numbers is that they see a deal on a potentially oversold USD. The divergence of positioning could lead to one of two likely outcomes. Either a potential breakout as other market participants see the 2017-year-end as way overdone or a flush out of the new longs who are proven wrong that leads to a strong breakdown that takes the Dollar Index to the 2011 high of 89.61 ( a ~2.5% drop from current levels) or toward 87.25 (a ~5% drop). Trade should also not hold their breath until a break and close above 94.16 develops.

Fed Minutes Fail to Lure Buyers

A few positive developments are that the Fed Minutes released on Wednesday was the evidence that the Fed does not appear concerned about the backdrop of the economy that would warrant a slowdown of hikes. Additionally, the yields of the US Treasury 10-yr Note rose to 2.47% as the odds for a March Fed rate hike rose from 68% to 76% after the minutes.

DXY Technical Update

The technical pictures encourage traders to heed momentum and favor downside for now. The dollar struggles persist, and despite likely being driven by year-end and year-open flows. Short-term resistance is at 92.25/35 (Dec 31 and Jan 3 high) and further at 92.50 (late November low). Below these levels, momentum prevails.

Please add a description for the image.

Chart created by Tyler Yell, CMT. Tweet @ForexYell for comments, questions

Unlock our Q1 forecast to learn what will drive trends for the US Dollar in the new year!

Insight from IG Client Positioning: Pickup in short positioning favors support of price advance

EUR/USD sentiment is analyzed for insight since EUR/USD makes up 57.6% of DXY.

Please add a description for the image.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EURUSD-bullish contrarian trading bias.

---

Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

To receive Tyler's analysis directly via email, please SIGN UP HERE

Contact and discuss markets with Tyler on Twitter: @ForexYell

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES