Dollar and CTA index show strong upside, trend followers eyeing FX risk

Investing.com -- Commodity Trading Advisors (CTAs) are maintaining a strong long position in the US Dollar, as indicated by the correlated upward movement in both the Dollar and the benchmark CTA index this past Thursday, according to Bank of America.

This trend has been consistent, with the Dollar showing gains for the past five weeks and in 13 of the last 14 weeks.

Two weeks ago, it was noted that some trend followers might be allocating more risk to foreign exchange (FX) as its trend is relatively stronger than those in equities, bonds, and commodities. This could be a key factor, as a reversal in the Dollar and subsequent CTA unwind could occur more aggressively due to the increased risk allocation.

In the coming week, it is expected that trend follower short positions in the Japanese Yen could increase. It was also noted that the Brazilian Real was recently added to the daily update, and the model indicates that if CTAs were active in that market, they would be long in the Dollar versus the Real.

According to the model, trend followers are likely still long in the S&P 500 and NASDAQ-100, but their positioning is off peak levels due to a decrease in price trend and higher realized volatility. The NASDAQ-100 sell trigger in the model suggests that trend follower selling could intensify if the level reaches 20880.

In terms of the Russell 2000 , if long positioning is still in place, it should be close to flattening in the near-term. Outside of the US, CTAs appear to be long in Nikkei 225 futures and neutral in EURO STOXX 50 futures.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Source: Investing.com