CFTC data from last weekend showed the largest net speculative long position in EUR futures since 2020. Total USD short positioning is less extreme, but it is still near levels seen in 2023 and after Liberation Day.
The US Administration has said it prefers a weaker dollar and lower interest rates. Lower rates would cut the cost of hedging FX exposure on large foreign-owned US equity and bond holdings.
Positioning Remains Crowded
Even with that backdrop, USD selling has struggled to gain momentum. Short positions remain crowded. DXY fell below its 50-, 100- and 200-day moving averages in mid-January.
A rise of a little over 1% would push DXY back above those moving-average levels. That suggests the recent break lower could be reversed with only a modest rebound.
Betting against the US dollar has become a crowded trade. Speculative positioning now looks similar to the extremes seen in 2023. Last weekend’s data showed net long euro futures positions at their highest level since 2020. That means many traders are already positioned for dollar weakness, leaving less room for new sellers.
Even though the US Administration would like a weaker dollar to ease financial conditions, bears have not been able to push it lower. The US economy still looks resilient. January data showed inflation holding at 2.8% year-on-year, while retail sales surprised with a 0.8% jump. That underlying strength helps support the dollar against other currencies.
Options May Offer Better Asymmetry
Technically, DXY did fall below the key 50-, 100- and 200-day moving averages last month, but the move looks fragile. A gain of just over 1% from current levels would put the index back above all three averages, which could trap short-sellers. In that context, aggressive USD selling looks high risk.
For derivatives traders, this argues for caution when shorting the dollar outright via futures. A heavy build-up of shorts increases the risk of a sharp rally, or “short squeeze,” in the coming weeks. A more balanced approach may be to use options to define risk—for example, buying DXY call spreads or selling out-of-the-money puts to collect premium.
The crowded long-euro trade also stands out. We saw a painful unwind from similar levels in late 2025. Traders could consider EUR/USD put options as either a hedge or a directional bet on a reversal. If the dollar strengthens, the heavily owned euro is likely to face the most pressure.
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