The US Dollar Rally Might be Short-lived Amid Economic Worries   

The US dollar rebounded with the beginning of the new month after reporting the worst monthly performance in nearly a decade. The US dollar index surged to 93.50 level in Monday trading against the basket of major currencies.

The sentiments are not high about the US economic revival as construction data pointed slower than expected recovery. The market analysts believe the gains are mostly attributed to investor’s strategy of moving out of the short position.

“Sentiment was overdone,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “The swing in the pendulum of market sentiment hit such an extreme,” which allowed for some unwinding of those short positions, he said. “I don’t expect it to last long,” he added.

US Dollar

Reuters has reported that net short positions on the greenback jumped to highest in the last 9 years at $24.27 billion.

Concerns over the second US stimulus package has also been denting sentiments as economists forecast a huge pressure on already growing fiscal deficit. Fitch Ratings has dropped its US outlook to negative from stable.

“Sentiment was overdone,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “The swing in the pendulum of market sentiment hit such an extreme,” which allowed for some unwinding of those short positions, he said. “I don’t expect it to last long,” he added.

On the other hand, The Euro lost its upside momentum on Monday, as some investors have started capitalizing on the recent gains. The common currency has recently hit more than two years high against the greenback. However, bulls expect euro to extend the upside momentum amid stronger than expected manufacturing data.

British Pound also retreated against the US dollar. The movement of the British pound is correlated to Brexit related news in the coming days.

The pound has recently hit multi months high against the US dollar and several other currencies.

Siraj Sarwar - Lead Analyst
@tradethedayfx
Siraj Sarwar has been performing analysis on the stock market, equity research and general business consultation. He regularly contributes articles on economics, commodities, and equities to the world's leading websites, including Trade the Day, SeekingAlpha, TheStreet, and MSN.
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