Emergence of short positions will underpin dollar
July 16 (Reuters) -Traders have shorted the dollar versus euro, pound, Australian dollar, and New Zealand dollar and the emergence of these bets against the U.S. currency will underpin it.
Bets against the pound have grown to their highest levels in 17 years, while traders who earlier this year held record bets on Australia's dollar dropping, have ventured long for the first time in several years.
Those trading EUR/USD have rarely bet on a drop in the past 22 months and most recently began to bet on rise while wagers that New Zealand's dollar rises are the largest in six years.
The bigger bets on the dollar falling become, the greater their restraint on its drop, and because the U.S. currency is supported by a higher interest rate, it's costly to short.
If the hoped for drop in dollar's value unfolds slowly those short will see profits diminished. If does not drop they will lose and should it rise their bets could prove much more costly. This week the dollar index has risen back above the influential 200-DMA which may result in bigger gains, squeezing those short,
With options volumes suppressed there is less chance of a fast move in any direction, and with traders short dollars, should the Bank of Japan try to drive down its value, there is far less chance that it will influence markets as it did in 2022 when the investment in dollar was overcrowded.
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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
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