U.S. Dollar Index: Overvalued Market, Crowded Longs

In this video we look at a series of charts on the US Dollar Index or DXY from the Weekly Macro Themes report. The main chart of interest shows what we refer to as the “DXY dilemma”, where a tension is playing out on the outlook between the yield support factor (which is a strong per of the US dollar) vs the positioning and valuation indicator.

The positioning and valuation indicator shows a market which is overvalued and with crowded longs. Under those circumstances it’s difficult for the index to rally, or certainly it’s at risk of a pullback, yet at the same time the DXY still enjoys considerable yield support.

There’s a window of opportunity where the Fed is likely to get a few more rate hikes in before the other major central banks start hiking, and this presents upside risk for the US dollar. A couple of other unique charts also point to upside, as shown in the report and the video…

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