In terms of the USD its sold off hard against the European currencies, and we like the look of USD/SEK for a potential reversal to the upside. Our view based on the fundamentals, sentiment and key technical levels to look out for below

The USD is at a bearish extreme, and we expect it to break higher with high BETA currencies like the SEK, which tend to be highly volatile, being hit hard.

Speculative Positioning – The Broad-Based USD Sell-Off

Speculators have sold the USD hard against all major currencies, and on the COT Net Traders report, we can see the size of the selling. US dollar (USD) net-short exposure reached -$18.3 billion, the most bearish level since August 2022. USD net-shorts have increased in 11 of the past 12 weeks, pushing the USD to oversold.

For Clues to Speculative Positioning in SEK Look at the EUR

When traders buy the EUR they tend to be long the SEK, and while there is no COT position report for the SEK, we can get clues of how long they are by looking at EUR positioning, which is below.

USD at a Bearish Extreme

The market thinks tariffs will send the US economy into recession, which, if we look at recent data this is not an odds-on bet; the US economy is slowing, but not close to recession. We also dont expect the doomsday of trade wars and expect plenty of deals to be done. Also, the US economy is doing far better than its rivals with or without trade wars.

Finally There is talk of the USD losing its global reserve status which is unlikely to happen in the short term. With speculators heavily short we expect a rally.

Technical Analysis

After the big down trend on the chart below we can see the USD has moved off its lows and now expect a break higher to trigger a significant rally to the upside.