Market News

(Bloomberg) -- Traders look to be turning more optimistic on the dollar after its worst start to the year since Donald Trump’s first term as US President.

The greenback advanced against most of its Group-of-10 peers on Thursday, helping the Bloomberg Dollar Spot Index stabilize after a more than 3% slump this quarter on concern that a trade war will weigh on the US economy.

Now, options traders are starting to position for a rebound in the greenback, with so-called risk reversals — a gauge of appetite for options that benefit from a rise or fall in a currency — increasingly favoring dollar strength. That’s despite speculative traders, including hedge funds and asset managers, reducing their bets on the dollar to the lowest since October, according to data from the Commodity Futures Trading Commission through March 4.

“A stabilization might be on the cards for now” for the dollar, said Francesco Pesole, a currency strategist at ING Bank NV. “In the coming weeks, we still see upside risks for the greenback.”

Some technical signals used by the market to identify turning points in an asset price also support the idea of a dollar rebound.

A gauge of momentum known as the Commodity Channel Index, which compares a currency’s price to its statistical average in order to identify when a move has gone too far, is signaling that the dollar is a buy; such signals have captured six periods of greenback strength over the past 10 months.

And, on Friday, a separate indicator — the so-called DeMark Buy Countdown, which tracks a market trend’s strength and its likelihood of reversing — hit a level viewed by some market participants as a sign the currency will rebound within the next 12 days. When that signal last triggered in December 2022, Bloomberg’s dollar gauge rallied more than 1% within a week.

The Bloomberg Dollar Spot Index has been trading near its 200-daily moving average for the last week without definitively breaching it to head lower — or bouncing back.

--With assistance from Alice Gledhill.