Short selling on the dollar has reached new highs according to Scotiabank, one of Canada’s big five banks.

“CFTC data reflected the largest week-to-week turn against the dollar since early-Aug 2020 with the USD’s net short reaching its highest mark on record (in dollar terms) at USD35bn on the back of a USD3.7bn increase in favour of the currencies that we track,” they said in a just published note.

The Euro in contrast has seen a rise in longs by $1.8 billion over last week, with this rise apparently due to some shorts closing.

Gold is still net long, Scotiabank says, but that bullishness is decreasing in part because many gold investors are diversifying to bitcoin.

Dollar index, Jan 2021

The dollar has slightly bounced from its big support at 89, the lowest level since March 2018.

However its still far off from the lows of the banking crash in 2008 when it dropped to 71, the lowest on record.

Yet the unprecedented measures to fight the pandemic are magnitudes higher than in 2008, with Biden just recently announcing plans for a $2 trillion stimulus on top of the circa $3 trillion last year.

That $5 trillion total accounts for 25% of the GDP for a government already heavily in debt at $28 trillion.

Concerns are a rise in yields could make this debt unserviceable without what at that point would be more expensive borrowing, forcing the FED to buy it out, which itself could cause more inflation.

Food prices are up by some 2% in the west while in countries like Brazil they’re up 15%. Meaning the purchasing power of money is falling.

In addition as the economy is in big trouble especially as some British officials say lockdowns may continue until autumn, any tightening measures this year appear unlikely, with the dollar devaluation the only ammo left for Fed.

That could force Europe to devalue as well to make its exports more competitive, while China is trying to build a wealthy middle class so they’re happy with letting the Yuan strengthen to make imports cheaper.

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