JPMorgan highlighted the shift in currency market dynamics, noting the dollar weakened in May after a period of significant long positions in late April.
The bank’s analysis found that currency-only hedge funds had a more modest long dollar position in April compared to January, based on the positive beta between the HFRI Monthly Currency Hedge Fund Index and the JPM USD Traded Index.
The report found that while dollar long positions were less pronounced in April among currency hedge funds, a broader cross-section of macro managers maintained a heavier dollar long base at the end of the month.
This estimate was derived from data from the Commodity Futures Trading Commission (CFTC), with a particular focus on the non-profit category, which covers a broader range of macro managers beyond just currency hedge funds.
According to the bank, significant long dollar positions observed in CFTC data were only partially closed in May. The unwinding of these positions likely contributed to the dollar’s decline during the month.
JPMorgan’s analysis also found that systematic funds such as Commodity Trading Advisors (CTA) may have contributed to the creation of a previously heavy base of long dollars, as evidenced by their momentum-based structure.
The reduction in dollar long positions comes after a period of strong positioning in favor of the US currency.
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