Bank of America (BofA) provided insight into the current state of G10 currency positioning, noting that it has become more balanced compared to the end of the second quarter. However, the bank also highlighted that certain vulnerabilities remain, especially regarding hedge funds’ long positions in the US dollar (USD).
According to BofA, USD-JPY demand was a major trend in the first half of the year, and its partial reversal was the most notable change in the third quarter. The price action in the G10 FX market continues to be driven by hedge funds, with lingering vulnerabilities in their USD longs.
Real money, on the other hand, remains neutral on EUR-USD pairs and focuses on emerging market currencies and carry trades.
The futures market is currently more balanced than earlier this year. Despite this improvement, the FX options market is signaling potential risks. These risks mainly relate to long positions in the Australian dollar (AUD) and short positions in the Japanese yen (JPY) and the Swedish krona (SEK).
The bank’s analysis showed the market was long the Australian dollar, slightly long the Norwegian krone (NOK), and short the Canadian dollar (CAD), New Zealand dollar (NZD) and Swiss franc (CHF) .
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