Anticipating Dollar Selling Pressure
We anticipate mild selling pressure on the US dollar as we near the end of August. The S&P 500 has increased over 3.5% this month, leading global funds to adjust their portfolios by selling their top-performing US stocks. This process inherently involves selling dollars to buy assets in other currencies. For those trading financial contracts, this suggests considering short-term bets against the dollar leading into the London fix on Friday. Buying weekly put options on the USD, or call options on major currencies like the Euro, could be a measured approach to this expected trend. The “mild” nature of this signal means we should look for low-cost options instead of aggressive outright short bets, as the Dollar Index (DXY) is still up 1.2% this month. The most distinct signal appears in the USD/NOK pair, where we expect the dollar to weaken the most. With Brent crude oil prices stable near $85 a barrel, the Norwegian krone hasn’t faced its own strong driver, making the equity rebalancing flow more significant. Traders might consider selling short-dated USD/NOK call options to take advantage of a potential dip towards the end of the week.
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