Originally published by AxiTrader
The US dollar has recovered following hawkish comments from Fed Chairman Jerome Powell. Could this the beginning of a US dollar recovery? While it is too early to tell yet, the charts are already showing some positive signs. Greenback bulls are already asking themselves: What is the best currency to short against the dollar?
While the Japanese yen and Swiss franc are likely the first ones that come up in traders´ minds, there are not the best choice. The rate differentials are indeed large, but due to the current risk-off sentiment, those safe havens might actually catch a bid. This is especially the case for the Japanese yen should we see another sell-off in equity markets.
The currency that could suffer the most is the euro. The reasons:
* Recent economic data out of the Euro Zone has been rather disappointing, which led to a decrease in rate expectations
* Political risks are back. While the euro has enjoyed a rally driven by solid data and no political worries, this has come to an (at least temporary) end. The Italian elections could intensify the pressure on the currency as the Eurosceptic parties are likely to perform well, and coalition negotiations will be long and tough.
* Positioning shows that euro long positioning remains at highly elevated levels. This increases the chance of a squeeze.
What are the charts saying?
Keep an eye on the support area between 1.2170 and 1.22 as a break below could pave the way for a retracement to 1.20.
