US Dollar's Disappointing Week Raises Questions About Carry Trade
The US Dollar had a disappointing week despite expectations for a rate hike from the Fed and rising inflation. The EUR/USD pair set up a doji on the weekly chart, highlighting how the crowded USD/JPY carry trade is playing a larger role in DXY dynamics.
Key fundamental factors point to a strong US Dollar, including elevated inflation, higher Treasury yields, and increased expectations around the Fed's rate hike. However, the USD/JPY trend has been in a 'sell the rip' mode, with bears re-taking control from longer-term charts.
US Treasury Secretary Scott Bessent's remarks on the unwind of the USD/JPY carry trade may have played a role in last week's sell-off. The continued unwind of this crowded trade could lead to a larger reversal and diminishing risk-reward ratios for longs.