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Andreas Zanin
Analysis | February 2, 2021

The majority of research and analysis we look at is bearish the USD in fact, every bank and broker forecast on the outlook for currencies in 2021 was bearish on the USD for the first quarter. As we noted at the turn of the year the bearish consensus towards the USD made it an attractive risk to reward buy and we have seen the USD firm up and in our view, it will strengthen further. Below find the latest speculative positioning and technical analysis of the DXY EUR/USD & USD/CHF.

Speculators Heavily Short the USD

Investors have built up their biggest short position in the USD since 2011. Below two charts which show the extreme. The first chart shows speculators heavily short with asset managers close to their biggest even short position. The second chart shows speculative long positioning in the G7 and emerging market currencies and also USD short positions against the DXY US Dollar Index which measures USD strength/weakness against a basket of currencies…

 

When Bearish News Doesn’t Push A Currency Lower

 If you look at the media banks and brokers are generally bearish of the USD and give lots of reasons why it should be going lower but it has actually been strengthening in recent weeks which signals that the bearish news is discounted and we could see shorts exit the market and trigger a major USD move to the upside. The key levels to look out for on the DXY are on the chart below:

In terms of the CHF we have a major short position held by speculators and we now think its getting hit on stop – on the chart below we have broken out to the upside and we think a major trend reversal has been confirmed, key levels of support and resistance below.

EUR/USD Big Speculative Money Heavily Long…

In terms of speculative positioning the big speculative money is heavily long EUR/USD. In terms of the chart below – after falling from the 1.2350 level moved below 1.2200 and we have now broken lower again through 1.2100 Any rallies in our view are selling opportunities and we expect a move down to 1.1800 then 1.1600.

For traders looking for a good risk to reward trend following trade we think EUR/USD is attractive the carry interest favours the USD and the big fundamentals do too. As we have noted in previous posts the US economy is doing better than Euro zone, COVID lockdowns are hitting the EU harder than the US which means the gap between the two eocnomies will widen further in the USD’s favor. Finally bond yields favor the USD.

 

 

 

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