Bank of America (BofA) provided insights into the current state of G10 foreign exchange (FX) positioning, noting that it has become more balanced compared to the end of the second quarter. However, the bank also highlighted that certain vulnerabilities persist, particularly regarding hedge funds’ long positions in the US dollar (USD).
According to BofA, the demand for USD-JPY had been a significant trend in the first half of the year, and its partial reversal has been the most notable change in the third quarter. The G10 FX market’s price action continues to be driven by hedge funds, with sustained vulnerabilities in their USD longs.
Real Money, in contrast, remains neutral on EUR-USD pairs and is concentrating on emerging market currencies and carry trades.
The futures market is currently more evenly balanced than earlier in the year. Despite this improvement, the FX options market is signaling potential risks. These risks are particularly associated with long positions in the Australian dollar (AUD) and short positions in the Japanese yen (JPY) and the Swedish krona (SEK).
The bank’s analysis found the market to be long on the Australian dollar, somewhat long on the Norwegian krone (NOK), and short on the Canadian dollar (CAD), New Zealand dollar (NZD), and Swiss franc (CHF).
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