An overlooked opportunity in Europe
We alerted you to the peculiar behavior of the US Dollar nearly a month ago.
We expected a short-term bounce on the Dollar, followed by further weakness. It is fair to admit we were wrong, as the Dollar continued straight lower. In our defense, while we did anticipate that the Euro would eventually reach the important 1.12 level, we envisaged a different route there. As we stress regularly, short-term predictions always carry high uncertainty.
That said, the sentiment on Twitter regarding $DXY has become so extreme that we still see a decent likelihood of an imminent bounce.
Another factor is the positioning in the Euro. Historically, when speculative net positions become excessively bullish and then start to diverge from the price, a major sell-off has usually followed.
Here’s a closer look at the current divergence.
And make no mistake, this is absolutely crucial for the Dollar, as the Euro holds more than 50% weight in the basket of currencies comprising the Dollar index. The only issue is that these divergences can persist for months while the price of the Euro continues to climb before eventually rolling over.
Nevertheless, considering these two factors, we lean towards an immediate bounce in the Dollar.
But how to play the bounce? Despite being wrong on the short-term direction of the broad Dollar index, we accurately predicted that the Chinese Yuan would be the weakest major currency against the Dollar. This prediction was a tremendous success.
As the Yuan example demonstrated, choosing the right currency to short against the Dollar is absolutely key. And we have a promising candidate this time as well.
We have identified a totally overlooked opportunity in Europe to play against the Dollar. Despite being glaringly obvious, nobody talks about it. Fortunately, users of the Premium version of SpreadCharts will not miss it, as we have just released a quick video analysis revealing this particular opportunity.
Gain access to the analysis by subscribing in the app or on our website.
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Disclaimer
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