Some key market indicators are beginning to suggest that as the bullish sentiment triggered by the US election wanes, the dollar's rise spurred by Trump may have stabilized.

Bloomberg's dollar exchange rate index fell for the third consecutive day on Tuesday after rising to a two-year high last week. Momentum indicators suggest that there may be limited room for further upward movement in the short term.

According to traders, the flow of investors' funds is no longer one-sided, and views on the dollar's direction are beginning to become more cautious.

Antony Foster, head of G10 currency spot trading at Nomura International Plc in London, said: "The strong dollar trend following the US election has undoubtedly entered a more turbulent phase."

Since late September, the dollar has been rebounding, partly due to President Trump’s plans to raise tariffs and concerns that his agenda will spur inflation and prevent the Federal Reserve from cutting interest rates. The Bloomberg Dollar Spot Index has risen 5.3% this year.

Technically, the dollar's slow stochastic indicator (a momentum indicator) shows that the currency has reached what is known as the overbought zone. Niraj Athavle, head of sales and marketing at JPMorgan in Singapore, said the bank's emerging market forex risk appetite index triggered a short signal on the dollar at the close on November 15.

Investors' views on the fundamentals of other major currencies are also a factor. The euro has rebounded from a support level of 1.05 after experiencing a three-month decline against the dollar. Its other technical support level is at the 2023 low of 1.0448.

Nomura's Foster said: "Market sentiment towards the euro is quite inconsistent, with some discussing parity or even lower prices, while others believe now is the time to buy. We see quite a few accounts taking profits on euro shorts, but certainly not all accounts are doing so."

Although Bank of Japan Governor Kazuo Ueda did not explicitly hint at a rate hike in the central bank meeting in December on Tuesday, the dollar is also struggling to break through 155 against the yen. Foster said, "The liquidity of the yen is mostly two-way."

Even the leveraged funds that initially increased their bets on a rebound of the dollar against the euro, offshore yuan, and yen after the US election seem to be reducing bets on the dollar's continued rise.

Athavle from JPMorgan said: "In the past week, there has generally been a net selling flow of the dollar globally. Asset management companies are small buyers of the dollar against the euro and pound, but this is offset by macro funds selling the dollar against the euro."

Of course, many on Wall Street are still advocating for a stronger US dollar. Hedge funds, asset management companies, and other speculators have been preparing for further appreciation of the dollar.

According to the latest data from the Commodity Futures Trading Commission (CFTC) for the week ending November 12, they hold about $17.7 billion in contracts that will benefit from a stronger dollar.

Goldman Sachs strategists abandoned their long-held view of a weaker dollar this month as they believe the dollar has reasons to remain strong for "a longer time." They stated that Trump's protectionist policies could reignite inflation and lead the Federal Reserve to slow the pace of interest rate cuts, pushing the trade-weighted dollar index up by about 3% over the next year.

Although Morgan Stanley's team believes the dollar will remain more range-bound in 2025, they expect the dollar to continue rising this year.

"The new government's domestic policies may keep the economy relatively hot, and trade policies could bring some upward pressure on the dollar," said Helen Given, a foreign exchange trader at Monex. "If these policies are not enacted or do not work, the dollar has some downside potential, but the risks facing the dollar still lean towards the upside."

Article reposted from: Jin Shi Data