Chart of the Day - Tuesday, August 25th, 2020

August 25, 2020

$DXY | Citi's Pain Index recently hit -40. The index has only hit that level a handful of other times over the last 8+ years.

This implies there is *very* crowded short positioning in the dollar amongst FX funds.

There's a lot of fuel to drive a sharp mean-reversion trade. pic.twitter.com/WzqzlCINLX
— Alex Barrow 🪶 (@MacroOps) August 25, 2020

Today’s Chart of the Day was shared on Twitter by Alex Barrow (@MacroOps). It's a chart of the US Dollar Index ($DXY) over the past 9 years along with the Citi Pain Index. This short-term indicator measures crowded market conditions in the US Dollar Index. Alex points out that the current reading of -40 suggests that the US Dollar short has become a crowded trade. An unwind of this large short positioning could fuel a sharp mean-reversion rally in the near-term, which would likely provide a headwind for a number of asset classes including, Stocks, Precious Metals, and Emerging Markets. For more on how extreme US Dollar sentiment and positioning have become, check out Alex's full blog post - iS tHE dOLlaR abOUt to cRaSH?

Filed Under:

Currencies,

TCR Chart of the Day,

$DXY,

US Dollar,

$USD

Chart of the Day - Tuesday, August 25th, 2020

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