Is The Dollar About To Crash?

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In fact, I’d rather be a buyer here than a seller since I know Newton’s First Law of Markets reigns supreme and a dollar in consolidation tends to stay in consolidation. Until, obviously, it doesn’t. This trading range has held for 5-years (minus the brief 18’ undershoot) and we should expect that to continue until the tape says otherwise.

If looked at in a Marcus Trifecta Lens, which is how we analyze everything here at MO. The technicals favor a reversion to the mean over the short-term.

Next, we have sentiment and positioning.

We already have a good sense of where sentiment is since I don’t think anything screams consensus more than a throng of popular teenage Youtubers streaming advice on how to protect your 401k from the coming dollar crash.

So I think we’re safe in skipping that one and going straight to positioning. And here the hard data confirms the soft.

Take Citi’s Pain Index for example. This index tracks positioning by looking at FX fund performance relative to currency moves. It recently dipped below -40, indicating that Funds are very short some USD.

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Similar crowded positioning is reflected in the CoT data. Here’s Commercial net data showing a rare dollar long position — implying specs are very short.

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And here’s the positioning breakdown by pair. The euro’s long positioning is in the 100th percentile for the last decade (the euro comprises more than half of the trade-weighted USD basket).

So long-term the dollar is at lower support in a 5-year sideways range. Sentiment and positioning are ringing alarm bells. Now, all we need is an actual setup.

Let’s have a look at the daily timeframe.

Here we have a chart showing a clear 3-push sell climax.

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This pattern typically shows up as the result of a buy or sell climax and often takes the shape of a wedge. In essence, it shows waning momentum and an inability of buyers/sellers to make headway after three attempts — a sign of trend exhaustion. This typically sets the stage for a 2-leg (minimum) reversal. That’s what I’m looking for in the dollar right now.

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Disclaimer: All statements are solely opinions and are for educational purposes only.

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