Key Moments
- Bank of America’s Systematic Flows Monitor reported renewed U.S. dollar weakness, as CTAs continued to sell USD amid softer price trends.
- Meanwhile, the bank’s model pointed to expected buying in GBP, AUD, and CAD, while MXN longs and JPY shorts remained the most stretched FX positions.
- At the same time, trend-following investors stayed heavily long U.S., European, and Japanese equities, as well as Gold and Silver.
Dollar Sentiment Weakens as Trend Followers Exit
According to Bank of America’s latest Systematic Flows Monitor, the U.S. dollar is facing renewed selling pressure. This comes as systematic investors respond to weakening price momentum. In a note dated December 26, BofA analyst Chintan Kotecha said the dollar “finished the week lower,” while CTAs continued to sell USD on weaker trends. As a result, the bank’s model now signals further rotation into other major currencies.
Model FX Positioning and Rotation
For the current week, Bank of America’s model forecasts buying in GBP, AUD, and CAD. This suggests a clear shift away from the U.S. dollar and toward other major currencies. At the same time, the bank noted that MXN longs and JPY shorts remain the most stretched FX positions. This highlights how extended trend-following exposure has become in those markets.
| Asset Class | Model Positioning / Signal |
|---|---|
| U.S. Dollar (USD) | CTAs continue selling on weaker trends |
| British Pound (GBP) | Model signals buying interest |
| Australian Dollar (AUD) | Model signals buying interest |
| Canadian Dollar (CAD) | Model signals buying interest |
| Mexican Peso (MXN) | MXN long remains one of the most stretched positions |
| Japanese Yen (JPY) | JPY short remains one of the most stretched positions |
Falling U.S. Yields and Fixed Income Flows
The weaker dollar trend has coincided with falling U.S. Treasury yields. Bank of America noted that yields moved lower again this week. However, futures price trends also declined as key data from October and November dropped out of short-term moving averages.
Despite recent weakness, trend-following investors remain long 10-year and 30-year U.S. Treasury futures. That said, the bank warned these investors could turn into sellers next week if price momentum continues to fade.
Equity Markets: Extended Long Positions on Lower Volatility
In global equities, Bank of America reported that trend-following strategies remain stretched long across U.S., European, and Japanese markets. This positioning is supported by lower volatility. Moreover, Kotecha noted that long equity exposure could still increase if realized volatility continues to decline.
Commodities and Agriculture: Gold, Silver, and Soybeans in Focus
In commodities, trend-following funds remain heavily long Gold and Silver. According to the bank, these positions could grow further if volatility pulls back. Meanwhile, in agricultural markets, CTAs continue to sell Soybeans, even after a brief price rebound.
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