Bank of America Global Research discusses the factors behind the ongoing shift in USD bullish trend.
"A trend A squeeze in sizable trend-follower positions has clearly been a big driver of recent moves. Indeed, our Systematic Flows Monitor flagged sharp reversals across equities, bonds and USD trend-followers, but our flows also show significant real money participation last week, and our latest FX & Rates Sentiment Survey shows shifts in sentiment on USD, EM and commodities, with positioning adjustments lagging, even before the inflation and China news," BofA notes.
"Cash levels remain high, however, and risk-taking lower than average in both our and the Global Fund Manager Survey. As we approach Thanksgiving and then the year-end, the question remains whether 'all' we are seeing is position reduction - which could have a ways to go - or if FOMO can tempt more people into deploying cash, triggering persistent moves.
For USD itself, the breadth of the trend signal has narrowed sharply and carry may be taking over from trend, at least for now. Value strategies likely need to wait for 2023," BofA adds.