Traders Eyeing Dollar Short Positions Amid Market Dominance
Despite the dollar's ongoing market dominance, Morgan Stanley's strategists suggest that a growing number of traders are positioning themselves to sell the currency.
"While dollar bulls dominate the headlines, a silent majority of investors appear poised to short the dollar," analysts including David Adams noted in a recent report. They anticipate that upcoming inflation data and potential fiscal deadlocks in Congress could trigger this move. A more benign trade policy outlook is also seen as a potential headwind for the greenback.
Morgan Stanley's bearish US Dollar Index forecast of 105 by Q1 end and 101 by year-end stands out among Bloomberg's surveyed strategists. This contrasts with the median projections of 108.7 and 106.9.
Hedge funds and other investors have been taking bullish dollar positions, betting that President Trump's policies will benefit the currency. However, Adams cautions that this optimism could unwind if the dollar reverses course. He recommends shorting the greenback versus the euro, yen, and sterling.
Despite the dollar's recent rally against other major currencies, traders have been focusing on Trump's actions rather than his rhetoric. The dollar has weakened this week, following Trump's comments on tariffs.
"Investors may be more inclined to initiate dollar shorts sooner and with greater conviction than bulls anticipate," Morgan Stanley's strategists warn. "Timing, not direction, is paramount for them."