Bloomberg reports, while analyzing data from the CFTC, that hedge funds have thrown themselves into buying the dollar. For the first time in over a year (since January 2022), funds are not net selling against the US dollar. Of course, looking more broadly across the spectrum of investors, market sentiment is still negative on the dollar, but hedge funds have changed their minds significantly in recent weeks.
It is worth noting that we have had some significant news from the economy that could lead to a recovery in the dollar:
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Create account Try a demo Download mobile app Download mobile app- A significant increase in inflation expectations according to the UoM
- Waller's statement on the desire for more rate hikes
- Overvaluation of interest rate cuts this year (50bp cut by the end of this year) and uncertainty of a hike in May (may act as a contrarian through a large premium)
Hedge funds have changed their stance in recent weeks. Source: Bloomberg
It is slightly different on the dollar index itself on which we have separate positioning (the one at the top applies to individual pairs). All non-commercial investors are further reducing positions in the dollar index, although these are further positive. On the other hand, the larger breakdown shows that leveraged funds are clearly reducing net short positions. Comparing the current situation to January last year, the dollar index was then clearly more overbought and ultimately gained for most of the previous year.
The conclusions seem to be almost contradictory, but on the other hand, HFs can be expected to expect a short-term recovery on the dollar due to the recent sizable sell-off that lasted since last autumn. On the other hand, the trend that started then in the longer term is unlikely to change. Source: xStation5
