U.S. dollar is once again under pressure from trend followers: BofA

Investing.com -- The U.S. dollar is coming under renewed pressure as systematic investors continue to sell the currency on weakening price trends, according to Bank of America’s latest Systematic Flows Monitor.

BofA analyst Chintan Kotecha said in the note released December 26 that the dollar “finished the week lower, and CTAs continued selling USD on weaker trends,” with its model expecting further rotation into other majors.

This week, the bank’s model anticipates “buying GBP, AUD, and CAD,” while noting that “the MXN long and JPY short remain our model’s most stretched FX positions.”

The weakening trend in the U.S. dollar comes as U.S. Treasury yields move lower. BofA stated that “US Treasury yields moved lower again this week, but futures price trends continued to fall” as key data points from October and November rolled out of shorter-term moving averages.

The bank added that trend followers “remain long 10yr and 30yr UST futures, but they could be sellers next week as price trends decline.”

Across global equities, BofA highlighted that trend followers “remain stretched long across US, European, and Japanese equities,” helped by falling volatility.

Kotecha added that CTA positioning could increase further because “CTA long equity positioning could still increase as realized volatility declines.”

In commodities, trend-following funds are “still stretched long Gold and Silver” and may add exposure if volatility falls, while in agriculture, BofA said CTAs “continue selling Soybeans” despite a brief price rebound.

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