Investing.com -- Changing tariff narratives in the United States are leading to volatile moves in the US dollar (USD), which is causing the short-term price trend of the currency to decrease.
According to Bank of America (NYSE:BAC) analysts, Commodity Trading Advisors (CTAs) are likely to partially unwind their long USD positions in the near future, particularly against the euro (EUR), Australlian dollar (AUD), Canadian dollar (CAD), and Mexican peso (MXN). This unwinding could be triggered by further declines in USD, with the USD/CAD pair being the closest to hitting the bank’s sell trigger.
In the European equity market, CTAs have been adding to their long positions in the Euro Stoxx 50 index, which has seen gains for five consecutive weeks. BofA’s model indicates that these positions are likely stretched, with positioning near the 90th percentile over the last ten years.
Meanwhile, the price trend in the US is “significantly less positive,” analysts note, “indicating that CTAs may have room to add to longs next week, especially in the Russell 2000 and S&P 500.”
In commodities, analysts believe CTAs may continue to add to their gold long positions, while the recent decline in oil futures has led to a significant reduction in long positions.
In the bond market, the trend for US Treasury (UST) futures is becoming less negative, which could result in CTAs covering their short positions.
Regarding the S&P 500 options, BofA notes that the SPX gamma was stable over the past week, averaging around $5 billion, similar to the previous week. As of the close on Thursday, the SPX gamma was long at $3.8 billion.
The bank suggests that if the S&P 500 rallies in the following week, the SPX gamma could increase rapidly, potentially reaching between $7 billion and $12 billion.