Markets have been happy to sell the dollar recently on the narrative that the US is seeing slowing economic data, inflation is falling,  and the prospect of  federal reserve interest rate cuts are growing ever closer. This dollar weakness is expected to continue as long as the Federal reserve doesn’t signal any more rate hikes.

Furthermore, the recent dollar weakness is the unwinding of some very stretched dollar long positions. As investors consider the path of US rates we may very well see an acceleration/continuation of dollar selling, and a further unwinding of stretched dollar long positions. This will also be on keeping with the seasonal weakness in the USD we see around year end.

With the dollar falling over 60% of the time from November 28 to December 31st, and an average return of nearly 1% in falls, now is the time to watch for decent opportunities to sell dollar rallies. The main risk here is obvious if the incoming inflation data and GDP data for US remains strong and we start to see Bond buyers retreat, then we could see a continuation of dollar strength. So all eyes on the Fed and the incoming US data for this outlook, but keep in mind the strong seasonal bias to sell the dollar.

The major trade risk here is from a re-turn to rate hikes from the Fed which would support the USD. Also, strong worries about a US recession could also send the USD higher.

Remember don’t just trade it, Seasonax it!