I guess they could go into a panic mode and it could get ugly! In this case I would not want to stand in their way, but I would rather use the opportunity, run behind them and press the bears even more.
As you know, I am a long-term US dollar bear, I wrote about my views many times before. Two months ago I wrote a post about an expected ST correction in the dollar (or in FX pairs against the dollar). We did get it, but in EURUSD not as deep as I have been expecting. Which is not bad if you ask me, just shows how strong EUR really is. Or if one wants to put it differently, it shows how hard it is for USD to catch a bid.
But I guess that lately you came across to those (some of them crazy) USD bullish calls that were made based on that bottoming head and shoulders pattern in the DXY index. Some were also saying that the dollar trade is over crowded to the short side. I tweeted about FX hedge fund positioning a couple of times lately (see here), saying that I don’t see the positioning to be over crowded in pairs against the dollar of the developed markets, but rather against the ones of the emerging markets.
Let me show you combined HF positioning of AUD, CAD, CHF, EUR, GBP and JPY on the next chart.
I guess it’s clear that the positioning is sitting in the mid range, not nearly at extremes as some would like to suggest. On the other hand, JPY positioning is sitting at near extreme short levels. Isn’t this something that is not in favor of USD bulls? Would you agree?
Let me finish off with a daily chart of EURUSD.
So, while EURUSD is above 1.1650-1.17 level we want to be long, stay long and press longs if you ask me. Especially if DXY gets below 94 level on a daily closing basis.
If the price stays above this level for a couple of days, upside momentum could start gaining some pace. If the price closes below above mentioned level we have to reevaluate this bullish thesis.