The pressure on the US dollar has reached its peak, and a rebound window has quietly opened?

According to Zhitong Finance APP, under the dual pressure of Trump's threat to fire Federal Reserve Chairman Jerome Powell and the risk of economic recession, the US dollar continued to be under pressure this week, falling to its lowest point since December 2023. Market analysts warn that the current extremely bearish sentiment may be brewing a technical rebound opportunity.

Ken Cheung, Chief Asian Foreign Exchange Strategist at Mizuho Bank, pointed out: "The window for a dollar rebound is opening — even if it may only be a short-term trend." He analyzed that the current net short position in the dollar has accumulated to record levels, technical indicators show an oversold state, and the relative advantage of US Treasury yields still exists. These factors together constitute the momentum for a rebound, although its gains may be limited by negative news about the dollar.

The relative strength index of the Bloomberg Dollar Spot Index has fallen to its lowest level since 2020, indicating that the nearly 10% decline in the dollar since its peak in February this year may be somewhat excessive. Historical data shows that in July 2023, when the Bloomberg Dollar Spot Index RSI (Relative Strength Index) fell to a similar low, the dollar rebounded by 7% within three months.

It is noteworthy that speculators are shorting the dollar on an unprecedented scale. According to the latest data from the CFTC, last week, the net short position of the dollar against 10 major currencies surged to $40 billion, reaching a new high since October last year.

Christopher Wong, a foreign exchange strategist at OCBC Bank, reminded: "The current dollar sell-off shows signs of being excessive, and shorting the dollar has become a consensus trade in the market, necessitating caution against a short squeeze triggered by covering."

Figure 1

Amidst the flood of negative news, there are still key data supporting the dollar's fundamentals. The latest report from the Federal Reserve shows that, as of the two weeks ending April 16, overseas central banks and sovereign funds increased their holdings of US Treasuries by over $10 billion, indicating that international reserve managers are still buying on dips. Additionally, after adjusting for inflation, the dollar still retains a yield premium against major currencies, which remains attractive to international capital.

Figure 2

From a technical perspective, the dollar struggled to maintain its gains on Tuesday this week. At the opening of the Asian market, the dollar briefly rose by 0.2%, but then turned to decline. So far this month, the dollar has only closed higher on three trading days.

According to related reports, several Wall Street bigwigs have recently issued warnings. Goldman Sachs CEO David Solomon stated that the likelihood of a US economic recession is rising against the backdrop of increasing uncertainty in trade policy. Former US Treasury Secretary Janet Yellen also stated that Trump's tariff policy has exacerbated the risk of economic recession Bank of America CEO Brian Moynihan stated that despite the increased future uncertainty brought about by Trump's aggressive tariff policies, "we may face a constantly changing economy in the future," but the research team at Bank of America still believes that the U.S. will not experience an economic recession in 2025