DXY is not kidding – the dollar is squeezing

Dollar Strength and FX Market Dynamics

The Mighty DXY
The U.S. Dollar Index (DXY) has decisively broken above its downward trendline. The first resistance stands around the 102 level, aligning with the 50-day moving average. The 200-day moving average remains significantly higher, indicating further upside potential if momentum continues.

The Weak Euro
The euro has fallen well below its short-term trendline. Interestingly, on intraday lows, the price nearly touched the 50-day moving average — a critical level. A month’s worth of euro gains has been wiped out in just a few sessions, showing how rapidly sentiment can reverse.

The Third Time’s the Charm (JPY)
Attention is on the Japanese yen, which has now risen above its 50-day moving average for the first time since early February. This is significant because large speculative long positions in JPY are under pressure — chart 2 illustrates the scale of this positioning.

No Love for the Dollar (Yet)
Despite the dollar’s strength, net speculative positioning remains short — meaning non-commercial traders are still betting against the dollar.

Another CTA Blow-Up Risk
According to Bank of America, their models suggest that trend-following CTAs are still heavily long EUR/USD. If the trend sharply reverses, this could trigger mass unwinding of positions and increased volatility.

Need Dollars to Chase U.S. Stocks
Investors looking to participate in the rally in U.S. equities need dollar exposure, further supporting USD demand.

Overbought Signals?
While not extreme, the DXY’s RSI is at its highest level since February, hinting at a potentially overbought condition — but not a full reversal signal yet.