European Currencies Shine

Global markets are under pressure due to a sell-off in US assets, causing the dollar to drop. This downturn is linked to tariff threats from Trump and rising geopolitical tensions before Davos. Meanwhile, European currencies are doing well, with the Swiss franc increasing by 1%. Rising gold prices and greater FX volatility hint that the dollar may keep falling, with the DXY index potentially hitting between 97.75 and 98.00. The sell-off has resulted in a sharp decline of the USD, following earlier weaknesses from the president’s tariff and Greenland comments. Core European currencies are performing better, particularly the CHF, while emerging market currencies are lagging. Gold has risen by 1.4%, reinforcing its role as a safe haven and adding pressure on the dollar. Increased FX volatility points to expectations of further USD declines. Current positioning data shows a drop in USD exposure, now slightly above benchmark levels. This shift could lead to more USD weakness, especially if US policies cause investors to rebalance their portfolios away from US assets. Large losses in the DXY suggest it may retest levels around 97.75 in the near term. A ‘sell everything’ mindset seems to dominate, especially regarding US assets. The dollar is continuing its slide due to renewed tariff threats just before the Davos summit. We expect the Dollar Index (DXY) to challenge the crucial support zone of 97.75–98.00, a level last seen during late 2025 lows. The rise in foreign exchange volatility indicates that traders are preparing for larger fluctuations in the dollar. The Cboe Volatility Index (VIX) has jumped above 18, a significant increase from the calm of the last quarter of 2025, when it averaged around 14. This situation favors options trading, such as buying straddles on major currency pairs to profit from anticipated market swings.

Finding Safety Beyond the Dollar

Investors are clearly looking for safer options outside the dollar, which is why gold has surged past $2,420 an ounce to reach new highs. The Swiss franc is the top performer in the currency market, with USD/CHF decisively falling below the critical 0.9000 level. This trend highlights a strong preference for non-US safe havens, which will likely keep pressure on the dollar. We should consider positioning for further dollar weakness by exploring options on the euro, especially as EUR/USD rises. The options market is now pricing a higher premium for puts on the dollar compared to calls, reflecting a significant shift in sentiment. This suggests that buying call options on EUR/USD may be a smart strategy to capture potential gains. This dollar sell-off could have further momentum because large speculators are just beginning to reduce their bullish positions. Although positioning is not as heavily long on the dollar as it was last year, recent CFTC data shows traders still hold more long USD positions than average. This creates potential for more selling as these positions are closed. Create your live VT Markets account and start trading now.

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