DXY: US dollar index under pressure as hedge funds increase short bets

The US dollar index (DXY) is under pressure today after reports emerged that hedge funds and other speculators had started to short the US dollar. The index is trading at $92.95, which is lower than last week’s high of $93.88.

Hedge funds bets against the US dollar

The US dollar index is falling as some investors start to question the role of the currency as a foreign reserve. According to a research by Bank of America, 36% of fund managers surveyed this month had a short position on the currency. That was higher than the 30% of asset managers who were interviewed in July. The fund managers who were surveyed were managing more than $1.2 trillion in assets. The report said:

“This is the most bearish sentiment has been in our survey history, while positioning was last this underweight USD in 2008.”

According to the report, 40% of the respondents expected the amount of US dollar reserves to drop. 30% of them expect the euro to continue to outperform because of the EU recovery fundthat was passed last month.

The Bank of America report is not the only one sending the wrong message about the US dollar. According to the Commodities Futures Trading Commission (CFTC), the net futures and options held against other currencies fell to minus 7,882 contracts in the previous week.

US data supportive

Nonetheless, economic data from the US has been relatively supportive of the US dollar. For example, early this month, data showed that the US economy added more than 1.8 million jobs in July, higher than what analysts were expecting. Another data released on Thursday showed that jobless claims in the country fell to below 1 million for the first time since March.

Meanwhile, data released by the statistics bureau showed that retail sales increased by 1.2% in July while core retail sales rose by 1.9%. Another data showed that industrial production increased by 3% while manufacturing production increased by 3.4%.

Nonetheless, the challenge for the US dollar index is that other economies are doing better. Retail sales, manufacturing and industrial production, and inflation in Europe and Asian countries have continued to do well. At the same time, in the US, the number of coronavirus cases has continued to increase while Democrats and Republicans are yet to reach a stimulus deal.

US dollar index technical outlook

The US dollar index (DXY) is in its fourth consecutive days in the red. It is trading at 92.97, which is the lowest it has been since August 7. Also, the price is below the 50-day and 100-day exponential moving averages. It is also below the descending trendline that is shown in green. It has also formed a descending triangle pattern. Therefore, it seems like bears have taken over, which means that the price is likely to continue falling as bears target the next support level at $92.50.