US Dollar: Firm tone extends with stretched positioning – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret note the US Dollar (USD) is strengthening on a higher-for-longer Federal Reserve (Fed) outlook, some haven demand and mixed global equities. US Dollar Index (DXY) is pushing toward 102, with stronger resistance seen in the upper 102 area. They warn markets may be overestimating Fed tightening risks and highlight already long speculative USD positioning as a potential constraint on further gains.

Dollar strength meets positioning risks

"More of the same for USD this morning, with a combination of a higher-for-longer view on US rates combining with some haven demand related to wobbly stocks and perhaps the realization that, despite positive soundbites, there are still some very significant gaps in US/Iran peace talks."

"The USD is firmer against all its major currency peers this morning and the DXY is extending towards the 102 point on the chart (the May 2025 high). Technically, stronger resistance may emerge in the upper 102 area, the 50% retracement of the 2025/26 drop in the index (102.86)."

"There’s not much to stop the USD from remaining firm or firming a bit further at this point. We think markets are overestimating Fed tightening risks but that issue won’t be clarified for some time."

"Positioning could be a constraint on dollar gains, however. Speculative positioning is running quite long USDs CFTC data suggests."

"Net USD longs in aggregate are nearing the highs seen in 2024 and early 2025 before the USD slipped off its peaks. Real money and hedge fund interest is lighter, which could give the USD a bit more of a tailwind, if bullish allocations are lifted."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)