Bears circling the dollar in quiet trading

The dollar remains on the back foot in subdued Thanksgiving-week trading, but bears are still sharpening their claws.

Analysts at Nomura see a cluster of dark clouds around the currency:

We still believe medium-term negative themes surround the dollar. The Fed remains content with market pricing being well below the dots, and a heavy legislative agenda risks tax disappointments and even a government shutdown as the budget deadline approaches.

Morgan Stanley also says that dollar weakness “remains our dominant theme”, with a potential shift ahead in yen-hedging practices among investors that could fire it up further:

So far, we have played this theme via bullish emerging-market and euro strategies. We see increasing chances of the yen taking off, following in the footsteps of the euro. Markets do talk and the divergence of the inverse relationship between the yen and Japan’s local asset prices including its equity market suggests that the structure within the flow of funds has changed, now working in favour of the yen.

This meets a market which is not prepared for these new developments. CFTC data showed that yen positioning is its shortest since 2013.

Sleepy market conditions appear to be standing in the way of further declines for now. The euro, for example, is flat today against the buck at around $1.1860, despite some sparkly German economic survey data.