Dollar to catch a bid?

Is the dollar about to turn just when everyone got excited with their shorts? We’ve seen an amazing selloff in the last couple of months, and while I still believe we are in the beginning of a major bear market [please see more here], I would not be surprised if we see a corrective rally from the current levels. This would also fit well into gold story discussed in the last post.

Let me first show you a weekly chart of EURUSD, the most important pair in the DXY index. We see that the pair is trading at a major resistance level of just around 1.20. eurusd_w

A closer look shows us that we are trading just above a 6 months long rising trend line with a potential triangle forming there as well.eurusd_d

While the price could resolve in both directions, I am more inclined to expect this to resolve lover because the dollar sold off by a lot in quite a short period of time and because of the COT positioning. If we combine the positioning of major currencies (AUD, CAD, CHF, EUR, GBP, JPY) against the USD, we get the following picture.dev_a_usd_cot
Hedge fund positioning is the longest (but not yet extreme) since the beginning of 2014. We see that hedge fund positioning can serve as a pretty good contrarian indicator so I would not be surprised if we see a pullback in EURUSD to somewhere around 1.13-1.15 level.

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