Futures traders have extended their bullish stance on the US dollar for a fourth straight week, boosting net-long exposure by $9.4 billion to $43.6 billion. Meanwhile, bearish bets against the euro, British pound, and Australian dollar have reached new extremes, with EUR/USD and GBP/USD shorts hitting decade-high levels. Despite these aggressive positions, signs of stabilization in several major currencies suggest potential mean reversion, though any recovery against the dollar may be limited by lingering Fed tightening expectations.
The US dollar index (DXY) showed signs of losing momentum after a four-week bullish streak, forming a bearish outside candle near the upper boundary of its trend channel. While expectations of an October Fed hike have weakened, the threat of further tightening could cap any pullback in the dollar. Futures traders increased net-long exposure for the fourth consecutive week, but a slight bearish divergence in asset managers' positions hints at a possible shallow correction.
EUR/USD has seen a significant decline, with large speculators hitting record highs in gross shorts. However, asset managers have eased off their record short positions, and gross longs are trending higher, suggesting a potential near-term rebound. The Swiss franc is also showing signs of stabilization at a pivotal support level of 1.20, with bullish bets building among asset managers and large speculators.
Commodity currencies like the Australian dollar appear vulnerable, with AUD/USD testing the neckline of a long-term head and shoulders top. Gross shorts in AUD/USD hit another record high, contrasting with stabilization in CAD and NZD. This divergence suggests potential short opportunities in AUD/NZD and AUD/CAD crosses.