TD Research discusses the current positioning in the FX market.
"The lack of momentum in the FX market has supported mean-reverting trades. Our positioning index tracker (PIT) has performed well the past few years, generating a Sharpe ratio of around 0.8. In turn, we highlight a few positioning trends across the FX landscape, starting with the broad USD.
The first chart shows that while the market remains long the USD, it has been dramatically reduced. That's equivalent to a 1-sigma flip. The second chart shows that this reversal has focused more on adding high-beta exposure than trimming defensive positioning," TD notes.
"It shows AUD, SEK, NZD, and EUR are over-populated and expensive, while GBP, CAD, and NOK are cleaner. We remain cautious GBP yet still like fading extremes like NZDUSD and AUDCAD. NOKSEK topside also looks attractive," TD adds.