Bank of America says commodity trading advisors face rising odds of having to buy back euro shorts after this week's dollar slide, while their short positions in US Treasury futures stay stable. CAD shorts face similar pressure, and CTAs still hold long MXN/USD positions.
Trend-following funds are edging closer to a point where they may need to buy back euro shorts, Bank of America says, after a sharp drop in the US dollar this week pushed the currency pair toward levels the bank's model flags as short-covering triggers.
BofA's positioning model shows euro buying pressure emerging between 1.1691 and 1.1853. That range is measured against Friday's 1.1679 reference level. The dollar fell sharply on Wednesday, and that move put pressure on the stretched euro shorts held by slower-moving commodity trading advisors.
Other dollar shorts feel the squeeze too
The euro is not the only currency where trend followers are under strain. Canadian dollar shorts also faced pressure this week, though the risk of a forced stop-out there remains more limited than for the euro.
Still, the picture against the dollar is not one-sided. Trend followers continue to hold long positions in MXN/USD, a trade that has supported their performance in recent weeks.
Treasury shorts stay put
CTA positioning in US Treasury futures tells a different story. That positioning remains heavily short, according to Bank of America. This week's sharp rise in yields gave those short positions additional room, pushing their own short-covering triggers further away rather than closer.
Source: Investing.com
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