The US dollar is likely to peak near or soon after the Fed Jackson Hole speech. The Fed is testing market sentiment.

The Fed is likely to taper its balance sheet (via Bullard, say starting 2022 Q2), the taper is likely to be with mortgage-backed securities (not US Treasuries, unless they want the yield curve to shoot up). This should not wobble the markets too much.

The US dollar is rallying into the Jackson Hole speech, therefore it is normal market action to see the unwinding of shorts positions. Also, in truth, no one knows if the Fed will make a mistake (remember the taper tantrum). If you review the CTFC COT reports there is no explosion of open interest which supports the idea that short positions are being closed.

Cycles confirm the current emotions surrounding the Jackson Hole time frame.

Cycle 1 - Short-term DXY peak expected soon

(Click on image to enlarge)

Cycle 2 - Long View of the above, notice the fractal

(Click on image to enlarge)