Dollar steadies, analysts flag potential short squeeze
LONDON, (Reuters) – The dollar steadied on Monday, recovering some ground against a basket of peer currencies after falling sharply on worse than expected U.S. jobs data last week.
The dollar index traded 0.2% higher on the day, at 91.174.. On Friday, it fell as low as 90.981 after data showed the U.S. economy created fewer jobs than expected in January and job losses the previous month were greater than initially reported.
Speculators have been reducing short positions – bets the dollar will weaken – on the currency. Some analysts have flagged the likelihood that the same speculators will be forced out of their short positions by a rise in the dollar.
Net bearish bets on the dollar by speculators fell to $29.95 billion for the week ended Feb. 2, compared with a net short position of $33.81 billion for the previous week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data.
Francesco Pesole, FX strategist at ING said, that even if the USD recovery stalls, “we could continue to see evidence of a USD short squeeze in the coming weeks”.
The euro traded 0.2% lower against the dollar on Monday, at $1.2029.
In a note to clients, J.P. Morgan strategists said they “have growing confidence of underperformance of EUR vs USD”.
“That warrants two changes to the portfolio: 1) rotating away from USD to fund trades primarily out of EUR, and 2) selling EUR/USD outright in spot.”
Investor morale in the euro zone unexpectedly fell in February as lockdowns to suppress the COVID-19 caseload left their mark on the economy, which lost touch with other regions in the world as they recovered further, a survey by Sentix showed.
Sentix’s investor sentiment index for the euro zone fell back into negative territory, dropping to -0.2 from 1.3 in January. A Reuters poll had pointed to a reading of 1.9.
The British pound bought $1.3686, 0.3% lower to the dollar.
The dollar was quoted at 105.62 yen, having pulled back from a three-month high reached on Friday.
In the cryptocurrency market, ethereum spot prices rose nearly 3% to $1,660 after the listing of ethereum futures on the Chicago Mercantile Exchange on Sunday.
Bitcoin, the world’s biggest cryptocurrency by market capitalisation, rose 1.2% to $39,347.
The onshore yuan edged up to 6.4547 per dollar, but trade is likely to be subdued before the week-long Chinese New Year holidays beginning Thursday.
Elsewhere, the Australian dollar was off 0.3% at $0.7657. Across the Tasman Sea, the New Zealand dollar traded 0.2% lower at $0.7182.
Source: Read Full Article