Biotech (XBI): Check the Exits Before the Dollar's Wake

By Juri von Randow · 8 July 2025 · Tuesday Target 28/52 2025

Why the crowded dollar short looks like a squeeze waiting to happen, and why that puts biotech (XBI) on the options shortlist rather than in the book.

The Corpse Coughed

The letter opens on a funeral, and the deceased is the dollar. Everyone has turned up: the euro crowd, the yen crowd, the digital-gold crowd, all trading stories about the end of American exceptionalism while the strategists hum along. The obituaries lean on record short positioning and on a DXY sitting further below its long-term trend than anyone in the room can easily recall. My point is simple enough. The body on the table is still breathing, and the smell in the room is nervous consensus rather than embalming fluid.

What makes me uneasy is how uniform the view has become. Trend followers hold their largest bet against the dollar since 2004 while sitting some distance from fully long equities. Retail has gone all in on penny stocks and treats currency risk as a relic from another era. At the same time the Treasury is about to sell an enormous slug of paper to fund the latest spending bill, which drains dollar liquidity precisely when positioning looks like a tinderbox. Consensus trades tend to end when somebody needs to leave and the doorframe turns out to be narrow.

Short Gamma at the Wake

The part that matters for anyone running options is how soundly the hedging market has fallen asleep. Equity volatility dozes in the teens, bond volatility has printed fresh lows, and the tariff deadline the letter was written into is priced as barely a wiggle. Dealers, by my reading, are short upside gamma on the dollar. If DXY pushes north of 98 they have to chase it higher, and a surprise inflation print or a hedge fund cutting exposure would do the rest. Cheap volatility across the board means the asymmetry has shifted toward whoever owns convexity rather than whoever is collecting it.

That is where biotech enters. I put XBI on the shortlist because a sharp move in yields and the dollar punishes every seat at the table, and the letter recalls how quickly tariff headlines torched risk before the White House softened its tone. Biotech sits squarely in that blast radius. I did not open a trade in the issue. The cycle already carries a solid number of positions, and forcing another one to fill a slot is how good months turn ordinary. If the setup arrives, an alert follows; if it does not, the shortlist stays a shortlist.

Tariffs, Crude and a Purge in Guizhou

The calendar first. The tariff deadline is the immediate catalyst, with any inflation surprise close behind it. Above that level on DXY the mechanical buyers appear, so that is the line I watch for signs the mourners are edging toward the door. The momentum complex is already wobbling: the most-shorted basket slipped, high-beta pairs unwound, and it registered as one of the sharper factor drawdowns in years. Funds that chased late look exposed to an air pocket as earnings season opens.

Then the wider board. OPEC+ delivered yet another supply increase larger than expected, inventories are building even with summer demand propping up Brent, and if shale steadies and product margins soften, crude has room to slide into the final quarter, unwinding the inflation-sensitive energy trade. In China, arrests among officials in Guizhou's big-data hub point to corruption inside the state AI push, and leadership vacuums there can stall data marketplaces and delay cloud spending, awkward for chip demand built on the assumption of a smooth boom. Washington, meanwhile, is floating an extra 10 percent levy on countries seen as aligning with BRICS de-dollarisation. My suspicion is that blanket penalties push marginal trade settlement onto parallel rails in yuan or rupee, eroding the very seigniorage the tariff is meant to defend.

Put together, the picture is a market that has priced the dollar's death with great confidence and hedged almost none of the alternative. The guest of honour has coughed and the wake carries on regardless. I would rather stand near the exit than take a seat in the front row.

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dollar squeeze · long convexity