Dollar Tumbles After Goldman Closes Short USD Reco

It may not be quite a "Thomas Stolper reco", but the dollar reaction to Goldman's announcement on Friday to close its long-running dollar short is certainly one that brings back a few memories of the infamous Kermit photo.

In a Friday note from Goldman's Zach Pandl titled aptly "Tactical Retreat", the bank's chief FX strategist said that "after a choppy few months we are closing our recommended USD short trade, expressed vs a basket of G10 commodity currencies (AUD, CAD, NOK, & NZD)." While we doubt Goldman's trade reco was the catalyst, the Bloomberg dollar index has tumbled in kneejerk response, sliding to a two-week low as US stocks soared on Monday, one day after the blockbuster payrolls report.

(Click on image to enlarge)

To be fair, it's not just Goldman. AS we noted two weeks ago, with most of the market short the dollar - which was one of the biggest consensus trades entering 2021 - there has been a big squeeze in net USD futures positioning, which went so far as to send hedge funds long the dollar for the first time since last July in what was the biggest dollar squeeze since 2014. 

As Bloomberg further notes, Goldman "joins hedge funds and other investors in capitulating on bearish dollar bets after surging Treasury yields triggered a rebound in the U.S. currency, capsizing one of the world’s most crowded macro trades."

What was a near-consensus call at the end of last year has come undone as improving economic data and an 80 basis point surge in 10-year Treasury yields boosted the dollar’s appeal relative to peers. The Bloomberg Dollar Spot Index has jumped nearly 3% this year.

If anything, Goldman's capitulation shows how much more powerful technicals and positioning are in this market compared to such anachronistic trivia as fundamentals.

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