Wednesday, September 3, 2014
Long the Dollar is becoming a crowded trade according to the most recent Commitment of Traders report. For the reporting period ending August 26th, non-commercial traders, which are mainly hedge futures and large speculators, were holding a net-short position of 153,650 Euro futures and a net-long position of 28,765 Dollar index futures. Non-reportable traders, mainly small speculators, are also Dollar bulls, with a net-short Euro futures position totaling 44,356 contracts and a net-long Dollar Index position of 8,234 contracts.
The U.S. Dollar is back in favor with currency traders, as the greenback has rallied to one-year highs vs. a basket of major global currencies. The September U.S. Dollar futures traded above 83.00 for the first time since July 2013 on positive data for U.S. manufacturing and construction. The Institute for Supply Management's (ISM) manufacturing purchasing manager's index for August came in at a surprisingly strong 59.0, vs. 57.1 in July. This was the highest reading since the 1st quarter of 2011 and well above the pre-report estimate of 56.8. This report seems to show that the U.S. recovery continues to strengthen, especially when compared to Europe where economic growth has stagnated and many countries in the European Union are seeing little to no growth -- or even moving back into recession. Dollar bulls received some additional good news on Tuesday, as construction spending rose by 1.8% in July, vs. estimates for a 1.2% increase from June. The strengthening Dollar was viewed as bearish for commodities, particularly for energies and metals which posted losses of over 1.5% on Tuesday.
Looking at the weekly continuation chart for Dollar Index futures, we notice while prices are trading at one-year highs, a longer-term picture shows the market in a nearly 3-year consolidation pattern, as the market traded in a range from 78.00 on the downside to almost 85.00 on the upside. While prices are pulling further away to the upside from the 20- and 200-day moving averages, it should be noted that the 14-week RSI has moved into overbought territory, which could portend a near-term correction may be near. 83.41 is seen as the next resistance level for the front month futures, with support found at 81.52.
Mike Zarembski, Senior Commodity Analyst