Bank of America (BofA) provided insights into the current state of G10 FX positions, noting that they are more balanced than at the end of Q2. However, the bank also highlighted some continued weaknesses, particularly in hedge funds’ long positions in US dollars.
According to Bank of America, demand for the USD/JPY pair was a significant trend in the first half of the year, and its partial reversal was the most notable change in the third quarter. The movement of the G10 FX market prices continues to be driven by hedge funds, with weaknesses in their long-term USD positions persisting.
In contrast, real money remains neutral on EUR/USD pairs, focusing on emerging market currencies and carry trades.
The futures market is currently more balanced than it was earlier in the year. Despite this improvement, the FX options market is showing 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 concluded that the market has long positions on the Australian dollar, moderately long positions on the Norwegian krone (NOK), and short positions on the Canadian dollar (CAD), New Zealand dollar (NZD), and Swiss franc (CHF).
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