This week, the U.S. Dollar Index has provided us with the official sell signal we’ve been waiting for. Therefore, this week’s piece is simply an update to last week’s article, “The USD Index – A Small Washout Coming?” Based on the internal action of last week’s market, I think a “small washout” may be understating things.
Commercial traders were heavy sellers in the US Dollar Index last week. They increased their net short position from around 63,000 contracts to net short more than 85,000 contracts.
Keep in mind that this happened as open interest increased from 120,000 contracts last week to around 123,000 contracts this week. The disproportionate increase in the commercial trader net short position as compared to the small increase in total open interest now brings the commercial net short position to nearly 70% of the total open interest. This market is creating a classic speculative trader bull trap. Keep a close eye on this one and see how it plays out.