We’re at a support level for the U.S. dollar: Strategist
The U.S. dollar index is down 4% so far this year, but one strategist sees the greenback rallying from here.
Traders have been unloading the U.S. dollar index for the past few months as the likelihood for another fed funds rate increase diminishes. According to the Chicago Mercantile Exchange, the fed funds futures market is predicting that the U.S. central bank won’t raise its short-term target rate until December.
However, Bill Baruch, chief market strategist at iiTrader, expects Fed chief Janet Yellen’s dovish stance to give way to the hawks earlier than the market anticipates.
“This is way too dovish right now, and the market is behind the curve,” said Baruch. “I expect this tone to lean toward a little more hawkish side from where she is now. The dollar is already overpricing in the dovish news and needs to come back towards the middle.”
Nonetheless, hedge funds have reduced their long positions in U.S. dollar index futures, a basket of several currencies that trade against the greenback. According to data compiled by the Commodities Futures Trading Commission (CFTC), “leveraged funds” (a catchall term that covers hedge funds and other types of speculators) were short 22,903 contracts on the index versus long 13,938 contracts. Each contract is worth $1,000 times the index price, which traded around 94.43 during the Monday session.
“I love seeing this,” Baruch said. “I love seeing the fact that the sellers have already come in and sold the market. Now if everybody is already sold, who is left to sell?”
Baruch sees support in the dollar index around the 93 level from where it bounced several times in the past two years.
“Seasonally, I really like this trade down here,” he said.