Table of Contents
◉ Introduction: Betting Against the Buck—Again ◉ The Trap of Consensus: Lessons from 2018 and 2020 ◉ Policy Divergence Still Matters ◉ The Technical Structure: DXY Compression or Accumulation? ◉ Tactical Opportunities for 2025 ◉ FAQs
1. Introduction: Betting Against the Buck—Again
As 2025 unfolds, the narrative dominating FX desks is familiar: “the dollar has peaked.” With the Federal Reserve projected to begin cutting rates while other central banks play catch-up, the consensus trade is short USD—again. But seasoned traders know the dollar rarely fades quietly.
Could we be in for another round of Dollar Déjà Vu, where the greenback defies bearish forecasts just as it did in 2018 and 2020? This article explores that possibility and the positioning traps forming beneath the surface.
2. The Trap of Consensus: Lessons from 2018 and 2020
➤ In 2018, global growth was booming and the Fed was tightening. Most expected USD weakness due to capital rotation—but the dollar surged on relative yield advantage.
➤ In 2020, after the Fed's emergency easing, markets braced for dollar collapse. But during the March panic, the DXY spiked over 8 % in 10 days as investors rushed for liquidity.
➤ Both events were preceded by extreme short positioning and misreading of global liquidity flows.
The common thread? When too many traders lean short USD—especially in low-volatility environments—even modest surprises can trigger violent reversals.
3. Policy Divergence Still Matters
Despite chatter of global central-bank normalization, the U.S. still leads on structural yields. As of Q2 2025:
➤ ➀ 10-Year U.S. Treasuries yield 4.05 % vs. 2.45 % for Germany and 0.75 % for Japan
➤ ➁ Real yields (nominal − inflation expectations) remain positive only in the U.S.
➤ ➂ Liquidity flows continue into U.S. short-term debt and money markets
If the Fed delivers just one or two cuts (instead of four), and inflation proves sticky, rate differentials will remain dollar-supportive—especially versus JPY, EUR and AUD.
4. The Technical Structure: DXY Compression or Accumulation?
The DXY (U.S. Dollar Index) spent most of Q1–Q2 2025 trapped between 101.5 and 104.0. While some interpret this as a topping pattern, others see signs of re-accumulation:
➤ ➀ Higher lows on weekly RSI, with divergence forming since March
➤ ➁ Options flow shows increased demand for 105–107 upside calls in Q3
➤ ➂ Commitment of Traders (COT) report shows net speculative shorts near multi-year extremes
A break above 104.50 with volume could invalidate the bearish case and spark a classic pain-trade squeeze into 107 or higher.
5. Tactical Opportunities for 2025
➤ Long USD/JPY:
• ➀ Rate divergence remains extreme
• ➁ Carry-trade inflows intensify when VIX < 15
➤ Short EUR/USD on spikes:
• ➀ ECB has fewer tools left
• ➁ French fiscal stress and core-CPI divergence favor downside
➤ Long DXY via ETFs or options:
• ➀ Look for breakout above 104.50
• ➁ Consider call spreads to limit premium outlay
Bonus idea: Pair long USD trades with long gold or U.S. equity hedges to offset tail-risk on unexpected Fed dovish pivots.
