<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=2045119522438660&amp;ev=PageView&amp;noscript=1">

The dollar has been strong in recent weeks. In late September it troughed at 99.9
(fig 1). From there through to the end of October, the trade weighted currency rallied by ~4% - rising in 15 out of 18 trading sessions.

With that, though, the main medium term trading models have also shifted. Over the past 3 weeks, the dollar, for example, has gone from oversold to overbought (see technical scoring system – fig 1b); sentiment has picked up sharply from notably bearish levels; while positioning has also shifted quickly to heavily crowded LONG positions (fig 1a).

The key question therefore is: What’s behind this move? What’s been driving the dollar?

The common perception is that recent price strength reflects Trump’s improving odds in the election race (as shown by the election betting websites) and, with that, the increasing chances of a clean sweep, with more fiscal stimulus packages and therefore higher bond yields. Equally, though, Trump is likely to impose tariffs across all imports, which is widely seen as a dollar negative policy.

Establishing the exact driver with any certainty in real time is, as always, challenging. What is clear, though, is that (so far) the models have been prescient with respect to timing switches from LONG to SHORT dollar positions. Their message now is increasingly clear.

In addition, the Fed is also holding its policy meeting later this week (which often injects volatility into the currency). The consensus, though, for this meeting is widespread, strong and clear (i.e. a 25bps cut).

Fig 1: Broad US dollar index candlestick with 200 day moving average

image-png-Nov-04-2024-12-55-57-2342-PM

Fig 1a: Aggregated* USD value of positioning vs. Broad US dollar index

image-png-Nov-04-2024-12-55-19-1250-PM

*Aggregated positioning across major USD currency pairs.

Fig 1b: Medium term technical scoring system vs. Broad US dollar index

image-png-Nov-04-2024-12-54-49-7822-PM

 

Subscribe

Get the latest press coverage and blog updates to your inbox.