FX Alert: Not for the timid – But the mean reversion crowd is circling

The CPI release showed some early signs of tariff pass-through, but underlying inflation remains muted. It’s also becoming clear that exporters, importers, and retailers are absorbing a significant portion of the tariff burden rather than passing it directly to the consumer, at least for now. The real test comes with the July and August prints, when price pressures are expected to build more visibly. Until then, the Fed stays in wait-and-see mode, watching whether this soft inflation trend holds or finally gives way under the weight of trade policy. September cut, however, is locked and loaded at this stage of the game.

The U.S. dollar is quietly reasserting itself—not with fanfare, but with the resolute composure of a fighter who’s taken a few body shots, steadied on the ropes, and now sees an opening. After three consecutive closes above its 21-day moving average, the DXY is no longer flailing at trend lines—it’s leaning into them, stepping forward with a bit of tactical confidence. The last time it attempted this back in May, it felt more like a dead-cat bounce. But this time, the tape whispers something different: this is not weakness pretending to be strength—it’s weakness that’s stopped being punished.

From a technical lens, even the quants are starting to nod. Systematic indicators, those cold, mechanical algorithms that chase momentum and punish softness, have started easing off their short-dollar bias. It’s not quite a buy signal yet, but when “less bearish” gets stamped onto a thoroughly carpet-bombed asset class, it’s often the market’s way of saying the selling has exhausted itself. For discretionary traders, that’s where asymmetry lives: not in chasing breakouts, but in catching the inflection before the models do.

Positioning is part of the setup. CTAs, having ridden the short-dollar wave all spring, are now left with sizeable exposure. If the dollar carves out just a few more technically supportive closes, those same CTAs may flip from short-covering to chasing—especially if bond vol stays grounded and equities remain sticky near the highs. In other words, the firewood’s stacked; it wouldn’t take much to light the spark.

JPMorgan’s FX desk strikes a more tempered note, calling for consolidation, not escape velocity. That’s fair. After all, when the dollar sheds 10% in six months—as it just did—it rarely turns on a dime. Historically, those moves are followed by choppy retracements or grinding range trades. However, those reversals are often deeper than expected, particularly when macroeconomic data doesn’t provide fresh bearish fuel.

And here's where the macro is starting to shift. U.S. growth momentum—once a relative laggard—has pulled itself back to the middle of the global pack. That may not sound impressive, but in a world where Germany’s economy is rolling in reverse and China’s stimulus engine misfires every other week, middle-of-the-pack starts to look premium.

Goldman’s Q2 GDP tracker at +3.0% annualized puts the U.S. on solid footing, with domestic demand still humming even in the face of tariff chatter and election noise.

More telling, the dollar is no longer the most expensive house on the street. According to valuation models, it's lost its crown as the “richest currency,” with several peers now wearing that dubious title. When the dollar is perceived as cheap and more currencies screen rich, it’s another good reversion setup.

Fed cuts are still in the cards, but largely priced in, the dollar may not need a hawkish repricing to find support—it just needs less dovish disappointment.

Meanwhile, the Bloomberg and WSJ editorial chorus has resumed its dollar doomscrolling serenade. Historically, that kind of consensus despair often signals a bottom in the dollar. The DXY rebounding off the base of its long-term upward channel amid a fresh burst of negative editorial headlines fits that contrarian template to a tee.

Bottom line: the dollar isn’t roaring back yet, but it’s no longer limping. The price action has stabilized, positioning is lopsided, growth is resilient, and sentiment is as toxic as ever—a cocktail that’s not screaming “buy,” but it’s certainly whispering “don’t be short over your skis.” Traders who have danced this rhythm before know that it’s not always about the catalyst—it’s about the absence of fresh reasons to sell. In FX, that alone can be enough for a turn.