The US dollar has dropped against major currencies for two days in a row. As the August 1 deadline for US trade deals approaches, worries about possible tariffs are impacting the dollar, which has fallen around 10% this year. Concerns about the fiscal deficit and political pressures on the Federal Reserve are also shaking confidence in the dollar. US yields are declining, with the Richmond Fed manufacturing index recently falling from -8 to -20. Technically, USDJPY has fallen to the 100-bar moving average near 146.389, testing important swing levels. EURUSD has broken through key resistance levels and is moving higher, while GBPUSD has surpassed the 38.2% July retracement level, indicating that buyers are in control. AUDUSD initially dipped but later rebounded to trade at 0.6551, showing a bullish trend. US Market Summary US yields closed lower, with the 2-year yield at 3.833% and the 10-year yield at 4.346%. The S&P reached a new record high, while the NASDAQ ended its six-day increase. The Dow rose by 179.37 points, and the S&P gained 4.02 points. Crude oil fell by $0.56 to $65.39, while gold prices rose by $33.98. Bitcoin jumped by $2185 to $119,622. The fundamental outlook for the dollar is weakening, and technical breakdowns across major currency pairs support this view. This situation creates a clear opportunity to prepare for more declines in the coming weeks. Recent data from the Commodity Futures Trading Commission shows that hedge funds and large speculators have increased their net short positions on the U.S. dollar to the highest level in over two years, indicating alignment with institutional trends. We should think about buying call options on the Euro and Australian dollar, using the breakout levels mentioned as references for strike prices. This strategy limits risk while taking advantage of the upward trends in EURUSD and AUDUSD. With the trade deadline approaching, there could be more volatility, making options a smart choice compared to more leveraged futures positions. Bearish Dollar Outlook The decline in U.S. yields across the curve supports our negative outlook, as it reduces the dollar’s appeal in carry trades. The CME FedWatch Tool shows an over 85% chance of a rate cut by the September meeting, indicating that the market anticipates a more dovish central bank. Political pressures on Chair Powell further strengthen the belief that rates are likely to decrease. The strong rise in gold is a clear confirmation of the anti-dollar trend, and we expect this momentum to continue. Even as the S&P hits new highs, the NASDAQ’s recent stumble suggests we should be cautious about the broader risk-on narrative. This might favor currency pairs like AUDUSD, which benefit from both dollar weakness and a solid commodity backdrop. Historically, times of coordinated easing by the Federal Reserve often lead to extended periods of dollar weakness, similar to the declines seen after the rate cuts of 2007-2008 and 2019. We should be ready to maintain bearish dollar positions for more than just a few weeks and consider adding to them during any short-term pullbacks. The weak Richmond Fed index signals that the economic factors for a weaker currency are also developing. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now