The U.S. dollar is facing renewed selling pressure as systematic investors continue to reduce exposure in response to weakening price trends, according to the latest Systematic Flows Monitor from Bank of America.
In a note published on Dec. 26, BofA analyst Chintan Kotecha said the dollar ended the week lower, with commodity trading advisors (CTAs) extending short positions as trend signals deteriorated. The bank’s model suggests further rotation away from the dollar and into other major currencies.
BofA’s framework currently points to potential buying interest in the British pound, Australian dollar, and Canadian dollar. At the same time, the bank noted that long positions in the Mexican peso and short positions in the Japanese yen remain the most stretched trades in its foreign exchange model.
The softer dollar trend has coincided with falling U.S. Treasury yields. BofA said yields declined again during the week, while futures price trends continued to weaken as key economic data from October and November moved below short-term moving averages.
Trend-following funds remain positioned long in 10-year and 30-year U.S. Treasury futures, but BofA warned that these positions could reverse if price trends continue to deteriorate in the coming week.
In global equity markets, the bank noted that systematic investors remain heavily long U.S., European, and Japanese stocks. Declining volatility has supported these positions, and Kotecha said equity exposure could increase further if realized volatility continues to fall.
In commodities, trend followers remain significantly long gold and silver, with scope to add to positions should volatility ease further. In contrast, BofA said systematic funds continue to sell soybeans, even after a brief rebound in prices.
