Strategists at HSBC Holdings PLC say the relentless selling of the US dollar is starting to look like a bubble – and, like all bubbles, it will eventually burst.
In a research note, HSBC strategists led by Paul Mackel wrote that traders seem to be fixated on the dollar’s sharp decline this year and are trying to use it to predict future performance. They said this is a sign of “bubble-like” behavior.
Not long ago, the strong bubble of the US dollar was still obvious, but now the situation is completely different: a phenomenon similar to an “anti-bubble”, strategists wrote. The characteristics of a “bubble” already exist, which is a warning signal indicating that the bottoming out of the US dollar may not be far away.
The Bloomberg Dollar Spot Index has dropped by more than 8% this year as the US’s tough tariff measures and their chaotic implementation have raised questions about the stability of the world’s reserve currency. HSBC expects the dollar to remain weak in the coming months, but strategists say the view that the dollar will fall further sharply has become “too one-sided”.
Strategists say that although the uncertainty of US policy has weakened the dollar’s safe-haven status and intensified the “de-dollarization” theme, the extent to which the dollar is worth further selling has weakened since President Donald Trump first announced wide-ranging tariffs in April.
They said that a return to the more traditional framework of the dollar being linked to US yields could signal that the dollar’s weakening trend is about to bottom out, and added that a similar correlation between the US stock market and yields is showing signs of recovery.
On the other hand, if US policy uncertainty “becomes an issue again” or the global economy starts to accelerate, the downward momentum of the US dollar could intensify. They said that although neither of these is the central bank’s basic expectation, “we need to be aware of the risks”. They added that the departure of Federal Reserve Chair Jerome Powell and the strong performance of the euro could be factors triggering the dollar’s decline.
While we consider some of the downside scenarios for the dollar, we must also be aware of what might signal the end of its decline, Michael and his team wrote. “We believe that an ‘anti-dollar bubble’ is forming. Although it shows no sign of bursting yet, bubbles eventually do burst.”
Technical analysis:
Gold: Yesterday, the yellow zone we alerted through the plugin, the rebound after the low-sweep liquidity, precisely predicted the price movement. After the price broke below 3342, it has now rebounded back to around 3354/55. We suggest protecting the profits in the middle. Tonight, due to the release of the US CPI, we recommend focusing on protecting overnight profits during the day and waiting for the CPI data to create a new demand zone before considering buying. For detailed positions, please consult the plugin.
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the picture, please contact V: Hana-fgfg and note “666” in the message.
The Nasdaq index: Last night, the price swept above 22,800, mainly due to the news that the sale of Nvidia’s H20 might be lifted. Tonight, the price still needs to be tested by the CPI data. If the CPI rebound is basically in line with expectations or exceeds expectations, then the Nasdaq index price may fluctuate widely by 200-300 points in the short term. It is recommended to wait and see for now and wait for a better opportunity. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the chart, please contact V: Hana-fgfg and note “666” in the message.
Crude oil: Yesterday, the green demand zone in the plugin performed poorly and failed to help the price stop falling and rebound. After the yellow sweep of liquidity, the price did not return above the color block either, and the conditions for a buyback were not triggered. Due to the uncertainty of the CPI today, it is advisable to wait and see for a day. Unless the price strongly recovers around 67.50, it is better to wait for the impact of the data to pass and then observe the signals. For detailed positions, please consult the plugin.
(Crude oil 15-minute chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the picture, please contact V: Hana-fgfg and note “666” in the message.
Today’s key economic data and events to focus on:
17:00 Germany July ZEW Economic Sentiment Index
20:30 Canadian June Consumer Price Index
20:30 US June Unadjusted Consumer Price Index
At 21:15, Federal Reserve Governor Bowman delivered a welcome speech at a conference hosted by the Federal Reserve.
