Bank of America (BofA) has released a report predicting that commodity trading advisors (CTAs), known as trend followers, are expected to sell the US dollar (USD) in large quantities this week.
The report notes that these traders are likely to buy the European Euro (EUR), British Pound (GBP), Australian Dollar (AUD), Japanese Yen (JPY), Mexican Peso (MXN), and Canadian Dollar (CAD) in response to the movements. In currency markets.
The Bank of America model suggests that the extent of US dollar selling by the CTA will correlate with currency declines. The more pronounced the decline in the value of the US dollar, the more US dollars trend followers are expected to sell.
This trend has been underscored by the recent weakness of the Japanese yen, which has returned to levels that previously led to Bank of Japan intervention.
The beginning of next week is marked by a public holiday in both the US and the UK, which Bank of America notes could lead to reduced liquidity in foreign exchange markets.
This low liquidity environment may make FX markets more vulnerable to larger movements in the event of any significant trade flows.
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