Synopsis:

BofA notes a significant shift in FX positioning this year, with USD longs being reduced by 40%, while JPY and EUR positions have increased. The market remains net long USD but with less extreme positioning, while EUR/USD shorts have moderated to post-COVID averages.

Key Points:

1️⃣ USD Longs Reduced, but Still Present 💵

• The year began with stretched USD longs, particularly against CAD, CHF, and SEK.
• These positions have been cut but remain net long.

2️⃣ JPY Longs Have Increased 📈

• The market has flipped from slightly short to long JPY.
• This aligns with price action, as investors join the upward JPY trend.

3️⃣ EUR/USD Shorts Moderating 🇪🇺

• EUR/USD remains net short but is no longer at extreme levels.
• Short positioning has reverted to its post-COVID average.

4️⃣ SEK an Outlier, Investors Skeptical on Rally 🇸🇪

• Despite SEK appreciation, investors remain cautious about its sustainability.
• BofA is long EUR/SEK via options, suggesting they expect SEK weakness.

Conclusion:

FX positioning has realigned with recent market trends, with investors trimming USD longs and increasing JPY and EUR exposure. While the market remains short EUR/USD, the positioning is less stretched, reducing the risk of aggressive short-covering rallies.