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Dollar Slips, but Bearish Bets Running Out of Steam

Published 05/25/2021, 03:08 PM
Updated 05/25/2021, 03:10 PM
© Reuters.

© Reuters.

By Yasin Ebrahim

Investing.com – The dollar slipped against its rivals Tuesday, but the short dollar trade is running out of steam as traders appear to be taking profit on their bearish bets.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell by 0.23% to 89.63.

"A number of warning signals on the charts however point to some possible profit taking in the short US Dollar positions and we would tighten up stops," Commerzbank (DE:CBKG) said in a note.

The pause in the short dollar has been evident in recent positioning data showing that the traders were reining in their bearish bets on the greenback following stronger April U.S.  inflation data.

"CFTC data for the week ending 18 May 2021 showed the aggregate dollar positioning was unchanged after four weeks of consecutive increases in net-short positions," ING said in a note Monday.

"That was broadly in line with the moves in the spot market, where the dollar rallied after the upside surprise in April’s US CPI on 12 May but then came under pressure again at the beginning of the following week," it added.

The dollar has also been knocked by an ongoing rise in the euro, which makes up about half of the weighing in the dollar index, as the EU continues to step up its pace of vaccinations.

EUR/USD was up 0.32%, to $1.2254.

Germany, the engine of the EU economy, reported business sentiment data for May that topped economists expectations.

"[W]ith new cases of Covid-19 falling, more than 44 million vaccine doses administered and some states easing pandemic restrictions once again, the ifo index of current conditions rose for the fourth month in a row, up 1.5pts to a fifteen-month high of 95.7," Daiwa Capital Markets wrote in a note.

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