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Jan 31 - 10:55 AM

BofA: How Much of the Q4 USD Positioning Has Been Unwound?

By eFXdata  —  Jan 31 - 10:20 AM

Synopsis:

BofA analyzes how much of the Q4 USD positioning has been unwound, particularly after last week’s USD sell-off. They estimate Hedge Funds have unwound ~30% of their Q4 USD demand, while Real Money clients have unwound most of their positions—though their Q4 demand was lighter compared to other groups. Options positioning has also declined by about 25% from its peak.

Key Points:

  1. Hedge Funds:

    • Unwound ~30% of Q4 USD demand (peak was mid-December).
    • Still hold significant long USD exposure.
  2. Real Money Clients:

    • Most Q4 USD demand has been unwound, but their long positioning was smaller to begin with.
    • Their modest long USD stance contrasts with a historically bearish bias since 2012.
  3. Options Market:

    • Positioning based on FX vanilla options is ~25% off its Q4 peak.
    • Latest CFTC data (through last Tuesday) doesn't fully reflect recent unwinding.

Conclusion:

The USD positioning unwind is still in progress, but significant long exposure remains. Hedge Funds have reduced only a fraction of their Q4 USD longs, while Real Money has mostly exited. Further positioning shifts could impact USD price action in the coming weeks.

Source:
BofA Global Research

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