BUZZ-COMMENT-Dollar's tariff risk premium partly unwound

Jan 22 (Reuters) - As noted previously, FX markets have taken a sanguine approach to recent tariff headlines and the tariff risk premium embedded in the dollar has been partly unwound as markets move away from a worst-case scenario.

The threat of tariffs will linger in the lead up to February 1, however, meaning the dollar's downside may be limited. Adding to a hesitancy to chase dollar weakness is the relative outperformance in the U.S. economy which remains conducive to dollar strength.

On the flip side is the positioning overhang. Net longs are at a historical high, leaving the greenback vulnerable to a flush out of stale longs. The more time that passes without tariffs being imposed, the less likely traders will hold onto dollars, paving the way for a deeper setback. Levels to watch on the downside are at 107.39 (55DMA) and 107 (pre-Fed level).

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(Justin McQueen is a Reuters market analyst. The views expressed are his own.)

((justin.mcqueen@thomsonreuters.com))