Where we are: The DXY currently trades at 98.14, down 0.28 after an overnight range of 98.03-98.48. The Greenback is underperforming against most G10 currencies as risk sentiment improves slightly ahead of the New York open. This puts the index well below Friday’s close, continuing the downward trend.
What’s driving it: The primary driver appears to be renewed optimism surrounding potential US-Iran talks, as highlighted by wire reports. This is weighing on the safe-haven demand for the Dollar. The US 10Y yield is currently at 4.323%, up slightly from its overnight low, but this isn’t providing sufficient support to offset the geopolitical developments. Speculator positioning remains crowded long in the USD, at the 94th percentile, increasing the risk of a squeeze if risk-on sentiment persists.
- Reuters: “Dollar steady as traders eye US-Iran talks, central banks”
- Falling US 10Y Real Yield (TIPS): 1.92% is a gold tailwind
- CFTC data shows speculators are net long USD, at the 94th percentile (52-week), and down -187 contracts w/w.
NY session focus: With no major US data releases scheduled before the New York open, the focus will remain on developments surrounding US-Iran negotiations. Any signs of progress could trigger a further decline in the Dollar. Watch for a break below the 98.00 level on the DXY; if it breaks this could trigger a sharper move lower given the crowded long positioning. The trade that’s working right now is short USD against risk-on currencies. The trade that’s at risk is long USD and safe-haven currencies. The pain trade for the Dollar is a swift resolution of US-Iran tensions.