DXY: Range trading on data focus – ING

💡 DMK Insight

The Dollar’s recent struggles signal a potential shift in market sentiment, and here’s why that matters: With FX options skew indicating strong demand for Dollar puts, traders are clearly positioning for further weakness. This could be a reaction to upcoming US economic data, like ADP jobs and December retail sales, which might not meet expectations. If these indicators disappoint, we could see the Dollar face even more downward pressure, impacting correlated assets like commodities and emerging market currencies. Watch for key levels in the Dollar Index; a break below recent support could trigger a cascade of selling. But here’s the flip side: if the data surprises positively, we could see a sharp reversal, leading to a short squeeze in Dollar shorts. Keep an eye on the 100 level in the Dollar Index as a critical pivot point. If we see a bounce off this level, it could signal a buying opportunity for Dollar bulls. In the short term, volatility is likely to spike as traders react to the data, so stay nimble and watch those economic releases closely.