Investors are once again showering all their love on the US dollar as most other currencies and cheap/risky assets get battered. USD f lows rose high  in the past week, markets saw investors showing favor for only a couple of currencies against the dollar while selling or shorting all others. Hedge funds’ long positions in USD have reached their highest YTD levels.

hedge funds

BAML‘s latest report on currency flows calls the scenario a “tsunami of USD flows”. According to data from BAML’s proprietary flows through Monday-Friday of last week, its forex strategists, Vamvakidis and Kyriacou speculate that the chunk of buying into USD took place after Fed’s meeting on Thursday. The conclusion is drawn based on the fact that CFTC future contracts data till Tuesday, June 18  had shown a marked reduction in USD long positions.

Real money and hedge funds both stepped up their bullish holdings in the dollar. BAML notes that the current reading are the highest for 2013, and 3-4 standard deviations greater than the average flows.

Hedge fund USD positions


Marked Reduction In USD Longs Before Fed's Meeting


Fed and China’s credit crisis has moved markets in the past few days. Treasuries have plummeted, as US 10-yr yield reached a two year record of 2.6 percent and bond mutual funds suffer through their worst sell offs. Assets like gold, copper and crude oil plummeted to new lows as USD soared and added further pressure on the commodity markets.

Hedge Funds Sell G10 Currencies, Move To Franc

Among currencies, hedge funds sold all, especially JPY, NZD, CAD, SEK, AUD, NOK whereas Swiss franc again rose up to its title of safe haven as hedge funds, real money buyers and corporates bought the currency in the past week. GBP also showed a net buying trend but only by corporates. In case of emerging market currencies, while hedge funds and real money were seen selling, the overall positions still remains net long as corporates did not take part in the sell off. BAML sees more room for correction here.

Equity and Bond fund flows in Emerging Markets

EUR was only marginally sold in the past week, which is not surprising as euro showed some strength against the USD which it appears it is on the track to lose now. BAML sees euro weakening as emerging markets rebalance their foreign reserves by selling some of their holdings.