Dollar Sellers Outnumber Buyers Despite Currency's Strength
According to Morgan Stanley, a significant number of traders are actively seeking to sell the US dollar, despite its recent dominance.
Silent Majority of Dollar Sellers
"While the dollar bulls are numerous, there appears to be a quieter plurality of investors looking to sell the dollar," said strategists led by David Adams. They anticipate this group is well-funded and awaiting signs to initiate short positions.
Potential Catalysts
Upcoming inflation data and prolonged Congressional budget negotiations could provide the impetus for selling the dollar. Additionally, a more favorable trade policy outcome could also weigh on the currency.
Crowded Bullish Positions
Hedge funds and other investors have accumulated bullish dollar positions, betting on President Trump's policies to strengthen the currency. However, a reversal in the dollar's trend could lead to significant market volatility.
Dollar's Continued Strength
Despite the surge in dollar selling sentiment, the greenback has gained against almost all major currencies in recent months. It has been particularly strong against currencies susceptible to US tariff risks, such as the yuan, Mexican peso, and Canadian dollar.
Caution and Optimism Post-Trump
Initially, traders were wary of Trump's trade rhetoric. However, since his inauguration, they have focused more on his actions rather than his words. This has led to cautious optimism and a 1.3% decline in the dollar this week.
Short Recommendations
Morgan Stanley recommends shorting the dollar against the euro, yen, and sterling, anticipating a weakening US currency. They emphasize that investors are likely to initiate short positions sooner and with greater conviction than dollar bulls may expect.