Recurrence of Net Long Positions Marks a New Milestone for USD

Statistics released by Commodity Futures Trading Commission (CFTC) last Friday show that it is the first time that speculators have been fully optimistic about USD since March 2020, according to the report and calculation by Reuters on July 23rd. These also indicate that the total value of net long USD positions has reached US 396.9 million dollars by the week ended July 20th, a situation unseen since March 2020. Net short positions worth 4.06 billion dollars remained until the previous week. Hence, it can be said that traders have turned to hold USD, which also explains the reason for the continuously bullish USD market recently.

As for the divergence of opinions about the aftermarket of USD, some analysts implied that USD only sees a temporary rebound that will reverse soon, thus calling on investors vigilance. However, in my opinion, its aftermarket can remain bullish as the competitive edges of USD are ascribed to the Federal Reserve (Fed) bound to be increasingly hawkish, which is compared to the backlog of dovish monetary policies carried out by central banks in Europe, Japan, Britain, etc.

I was asked whether the USD will be stricken by the news that Yellen has called for the instant congressional responses to potential debt defaults because of the U.S. debt ceiling expiring at the end of the month. In my opinion, the U.S. debt will hit the debt ceiling from time to time in eight years or a decade, following the row between Congress and the White House that will often end up with raising the debt ceiling in a bid to prevent debt defaults.

However, traders are so familiar with this final result due to its repeated recurrence that they all may predict similar agreements reached at the end to avoid defaults. In addition, the Democratic Party leading the Senate and the House of Representatives bolsters the possibility of agreeing on a consensus alike. Although defaults happening in the U.S. can take a heavy toll on USD, even the global financial market, its likelihood is less, thus cushioning investors extremely anxious sentiment.

Speaking of the financial market, its focus is bound to center around the Fed meeting on Wednesday. It is generally expected that the Fed is possible to deliberate over even announce the commencement of reducing the U.S. bonds in this meeting or the next one in September. In this case, USD is less likely to be haunted by debt defaults and return to a weak place. If this does happen, why do plenty of traders turn to go long in USD positions？ The behavior leads the net long USD positions to reappearance more than a year later. All in all, investors are relatively optimistic about the aftermarket of USD.