Investing.com -- Bank of America (BofA) said investor and foreign exchange (FX) options flows leading into the US payrolls report were light last week, highlighting that several currency positions could be at risk.
According to BofA, within the Group of Ten (G10) currencies, there are potential risks around hedge funds' long positions in the US dollar (USD) and Australian dollar (AUD), as well as short positions in the Canadian dollar (CAD).
Moreover, real money investors' long positions in the British pound (GBP) and short positions in the New Zealand dollar (NZD) were noted as vulnerable.
The GBP emerged as the weakest G10 currency performer last week, but BofA observed that trading flows were very light.
“With GBP positioning at neutral levels, we would prefer to see signs of new shorts being added before dipping back into GBP longs,” BofA FX strategists Michalis Rousakis and Athanasios Vamvakidis said in a note.
Despite light trading flows in the Japanese yen (JPY), BofA pointed out that the Special Drawing Rights (SDR) options flow for JPY has been consistently positive. The bank mentioned that strength in the USD/JPY exchange rate beyond 160 might be self-limiting, and they continue to favor a downside in the EUR/JPY pair.
In the emerging market (EM) FX space, BofA noted stronger flow actions. In the Europe, Middle East, and Africa (EMEA) region, significant selling of the South African rand (ZAR) was highlighted.
Hedge funds also resumed buying of the Turkish lira (TRY). In Asia, demand for the Chinese yuan (CNH) by both hedge funds and real money stood out, with hedge funds also reducing their short positions in the South Korean won (KRW).
Lastly, net flows in Latin American (LatAm) currencies were described as lighter. Hedge funds bought the Mexican peso (MXN), and real money showed demand for the Colombian peso (COP), coming from short positions in both cases.