BUZZ-COMMENT-Positioning is the biggest challenge for dollar bulls
Jan 23 (Reuters) - The biggest challenge for dollar bulls in the short-run is positioning. The last few months has seen a significant increase in dollar exposure and rightly so given the prevailing narrative.
However, that positioning has become crowded – net longs sit at highest level since November 2015 – and now that we have cleared the risk of shock and awe policies such as day one tariffs under U.S. President Donald Trump, some of that tariff risk premium embedded in the dollar has been unwound.
In turn, with FX markets somewhat in limbo, the dollar is vulnerable to a cleansing of positions.
That said, bulls will be encouraged by dollar majors defending key levels – USD/CAD at 1.43 and EUR/USD at 1.0450. What’s more, with Trump threatening tariffs as soon as Feb. 1, it is difficult for traders to strongly lean against the greenback, therefore limiting any pullbacks. Though, the longer time passes without aggressive tariffs, the more likely that the dollar will be exposed to positioning squeezes.
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