Click on the chart to enlarge
Click on the chart to enlarge
Gun to the head, the price action of today could only be described as the unwind of the Long Eur/Short Usd trade, as the head of the European Central Bank (ECB) lowered his hawkish tone, sending investors out of a trade that had priced-in multiple rate increases and tightening measures going forward as a way to battle inflationary concerns.
Open interest measures the amount of positions that are being started, whether long or shorts, that are still outstanding and that have not been offset. An increase in open interest, along with a move in one direction gives an indication of fresh new money being put to work. That might not be the case today, since the outlook for the Buck has not changed, and investors are not finding safety on the Greenback due to in-house issues like a National Debt Ceiling increase compromise by congress and balancing the books.
Dollar strength, is bearish for commodities, no wonder why the fall in precious metals and Oil, as the picture for the US currency got a little better not due to change of fundamentals in the Fed policies but rather deterioration of fundamentals in other markets, in this case in Europe. So keeping this in mind, the rally seen today in the Dollar Index should be short lived and the return of the domestic fiscal worries will determine the fate of the US currency going forward.
