Morgan Stanley on the US dollar
Following the 2% pullback in USD since the start of the year.
, we take stock of where market sentiment and positioning currently are
compiled from a survey of traders, measures short-term market sentiment among futures traders. Our preliminary analysis suggests that the index appears to be a useful contrarian indicator for USD, though more statistical analysis needs to be done to see if it can be used as a consistent trading signal. When the index reaches extreme levels (85% and 15%), it tends to mark a turnaround in USD. In November/December, USD bullish sentiment reached an extreme of 90% and declined subsequently, bringing USD down with it (Exhibit 9).
