QCP: Tonight's CPI could be the catalyst for a sharp drop in DXY

Odaily reported that despite the ongoing tariff actions between the US, Canada, and Mexico, as well as against China and US steel and aluminum imports, the traditional financial (TradFi) market has not found a clear direction. Looking at multiple indicators, there are no signs of panic on Wall Street. The VIX index seems to be fixed at 16, indicating that market participants have already bought protection measures for further negative news. Powell's testimony in the Senate reiterated the Fed's "wait-and-see" stance, hinting that the pace of rate cuts in 2025 may be slower. Despite this hawkish stance, the US dollar index (DXY) has failed to rise. Based on CFTC data, the market is inferred to hold a large long position in the US dollar. The interest rate differential also suggests that the US dollar is overvalued relative to other currencies, which may explain why the DXY has difficulty gaining momentum. Given that negative news may have been digested by the market, we believe the US dollar now faces greater downside risks. Any positive news could force a large-scale unwinding of US dollar long positions, which could drive a rally in risk assets. The release of tonight's CPI data may become a catalyst for a significant decline in the DXY. However, this rising tide may not benefit everyone. continues to underperform stocks and gold, indicating some hesitation within the crypto community. Liquidity remains thin amid the many new listings each week, and last week's massive liquidations have caused heavy losses for many traders. For participants still holding crypto long positions, tracking institutional fund flows and buying downside protection may be the best strategy at the moment, especially as options are relatively cheap to buy now.