USD: Heavy Short Dollar Positioning Ahead of Key Rate Decisions

USD: Short dollar positioning looks quite heavy

It's a big week for FX markets given looming rate decisions in the US, the eurozone and Japan. The dollar goes into these meetings in a slightly corrective mood and retracing some of the sharp losses after the release of the soft US June CPI report earlier this month. What might support that corrective mood is market positioning, where the latest data from the FX futures markets in Chicago suggests that asset managers are running their largest short dollar position on record when aggregating their positioning across eight FX futures contracts. We also happen to see some upside risk to the dollar this week from Wednesday's FOMC meeting, where we think it's still too early for the Fed to switch to a data-dependent approach to any further rate hikes. 

This week also sees US consumer confidence, second quarter GDP revisions and the second quarter Employment Cost Index. As always, the dollar story is driven by the push-pull factors of the US versus the Rest of the World (RoW). Unless we get some upside surprises in European PMIs today or Chinese authorities announce some overwhelming stimulus measures at Friday's Politburo meeting, it looks like the dollar can continue in this corrective/slightly bid tone.

DXY looks like it could grind higher to the 101.50 area.