On Monday while discussing the dynamics between the dollar and U.S. trade/current account balances, one of the charts did not use the latest data. Due to the holiday last week, the CFTC reported this week futures positions ended the 23rd (they should have come out last Friday. Tomorrow, positions as of the 30th will be published).
The latest non-commercial positions are interesting, to say the least. They reversed their recent trend of cutting back in net longs in US Dollar Index futures, and added quite a bit. They are now net long nearly 48k contracts, up 16k week-over-week (see the spike in the chart). They had been cutting back since the third week of September when their net longs peaked at 57k, which then fell all the way to 32k mid-December. This time, they got the direction wrong. The index has gone on to rally another six percent during the period.
The dollar remains tremendously overbought, but has momentum, having taken out one after another resistance levels. Self-fulfilling prophecy. Cogent arguments can be made in favor of a strong greenback in the intermediate- to long-term. But trees do not grow to the sky. At some point, the law of gravity rules. People expecting a breather, myself included, have so far been wrong. Looking at the way these large speculators were cutting back, maybe they were expecting the same, which has not materialized. Probably why they have decided to up the ante. If you can’t beat them join them. Sort of.
Tough to guess what this could mean for the direction of the dollar near-term. But overall sentiment remains overly bullish. Smacks of an overcrowded trade.
