USD net short-position likely to lead to a squeeze

Russell Shor, CFTe, MFTA FXCM

The USDOLLAR continues to trend down. This, as M3 money supply growth continues to apply pressure. Net bearish shorts are the largest since May 2011. Consider the following:

Past performance is not an indicator of future results

CHART SOURCE: FXCM MARKETSCOPE 2.0

The left chart shows the daily ichimoku chart of FXCM’s USD index – the USDOLLAR.

The orange lagging line is below price (blue rectangle) and confirms the bearish momentum.
Price is below the black base line, the black base line is trending down, and both are below the pink cloud (red rectangle).

The right chart shows the hourly ichimoku chart of FXCM’s USD index – the USDOLLAR.

Clearly the chart shows weakness.
However, we draw attention to just how far price has moved from the cloud (orange shaded vertical).
This suggests a short-term oversold position to us.
As such a reversion is likely.
In this regard we are looking for a rally to normalise the extended position.
Given the heavy short bets, this is likely to lead to a squeeze and sharp movement up.
Once completed, we will look to see if the rally will be targeted by short-sellers given the economics of supply

Author

Russell Shor, CFTe, MFTA

FXCM

Russell Shor (MSTA, CFTe, MFTA) has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the Interna

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