Is a U.S. Dollar Rally on the Way?

A U.S. dollar rally may be on the way in forex trading on the currency market. The greenback is inching higher today as confidence in the U.S. economy increases. Additionally, the latest news out of Europe about Austrian banking is causing uncertainty for the euro, and benefiting the U.S. dollar. With forex traders short on the euro, this could be the chance for a U.S. dollar rally.

GFT's Kathy Lien offers insight in FX360 on the possibility of a U.S. dollar rally in forex trading:

This shift from net short to net long dollars against euros is extremely significant. Since 2005, there has only been approximately 4 times (not including this time) that EUR/USD positioning has flipped to net short after being net long by more than 20k contracts. Each time, this shift in dollar positioning was a precursor to a more significant rally in the U.S. dollar. According to the following chart, the last time that speculative EUR/USD positioning (white line) flipped from net long to net short was in the first week of August 2008 and interestingly enough, that was the very week that the breakdown in the EUR/USD began, with the currency falling more than 3,000 pips or 20 percent over the next 3 months.