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The medium-term market timing model is flashing a contrarian buy signal for the dollar.
A new strategy note from Longview Economics, the independent market research and strategy firm, thinks the near-term 'pain trade' is for a higher dollar.
"U.S. dollar price action has been relatively robust, i.e. since Trump's 'attack' on the Fed began in early August. In particular, the DXY continued to trade around its 50 day moving average last month. It has therefore failed to move lower, despite bearish newsflow (i.e. it's been a resilient market)," says Longview in a new research note.
The research explains that USD resilience rests with speculative market positioning that is already net short, while, in a similar vein, measured sentiment readings are bearish.
"In recent weeks the bears have called for yet more dollar weakness, given the risk that the Fed will lose its independence and be forced to cut rates. In particular, fears of ‘fiscal dominance’ have grown, with many academics and economists downgrading their view of Fed credibility," says the note.
Big one-way directional positioning often serves as a good contrarian indicator.
Based on this and other indicators, Lonview's medium-term market timing model for the dollar is "generating a contrarian BUY signal."
The Dollar fell nptably in the first half of 2025 but has recovered during the third quarter. The question for investors is whether we are witnessing a consolidation in the downtrend or a turnaround.
Longview thinks there are strong macro reasons for a multi-year phase of dollar weakness, but "the near term 'pain trade' is currently upwards."
Consensus projections for the next four quarters, compiled from leading investment banks.
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