Bank of America (BofA) released a report forecasting that Commodity Trading Advisors (CTAs), known as trend followers, are expected to sell the US dollar (USD) in significant amounts this week.
The report suggests that these traders are likely to buy European Euro (EUR), British Pound (GBP), Australian Dollar (AUD), Japanese Yen (JPY), Mexican Peso (MXN), and Canadian Dollar (CAD) in response to movements in the currency markets.
BofA's model indicates that the extent of USD selling by CTAs will correlate with the currency's declines. The more pronounced the drop in the USD's value, the greater the volume of USD that trend followers are expected to sell.
This trend is underscored by the recent weakening of the JPY, which has returned to levels that previously triggered intervention by the Bank of Japan.
The beginning of next week is marked by a bank holiday in both the United States and the United Kingdom, which BofA notes could lead to reduced liquidity in the foreign exchange (FX) markets.
This environment of lower liquidity might leave the FX markets more vulnerable to larger movements should there be any substantial trading flows.
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