Hedge funds are taking advantage of the rising value of the U.S. dollar, which they don’t seem to expect to reverse course anytime soon. New data indicates that funds are more bullish on the dollar than ever, as they’ve set a new record in long dollar positions verses the euro. The previous record was set in June 2012.

Hedge funds’ long dollar vs. short euro at “unprecedented levels”

Analyst Alain Bokobza and the rest of the team at Societe Generale released their latest “Hedge Fund Watch” report on April 9. They warn that investors should “feel at least slightly ill at ease” because of how extreme the shift toward the long dollar has become. They point out that the shift is nearly three standard deviations from the historical net positions, as shown in the following chart (All graphs and charts in this article are courtesy Societe Generale.):

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The Societe Generale team adds that because of shifting monetary policies in the Eurozone, it “seems fair” to expect foreign exchange markets to remain volatile. Here’s a summary of what the hedge fund positions on some of the world’s currencies have looked like.

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Why be concerned about the long dollar?

The analysts provide a few reasons they’re concerned about so many hedge funds being so bullishly long on the U.S. dollar right now. They point out that their data doesn’t show hedge funds’ reaction to last week’s jobs creation data yet, which is of note because that data was very disappointing. Fewer than 200,000 new jobs were created, marking the first time in the last 12 months that this has happened.

They say if the disappointment was “just due to some turbulence in Q1,” then they would expect the second quarter to see a “strong recovery” resulting in the Fed tightening up rates by the end of the summer. Further, they add that delays are of course good for Treasuries and Equities, but they’re bad for the U.S. dollar.

Hedge funds return to the Nikkei

Societe Generale also found last week that hedge funds are shifting back toward the long side on the Nikkei. Funds aren’t especially short on the yen, which they say typically happens before Japanese stocks outperform.

However, the analysts add that hedge funds must be finding other reasons to go long on Japanese equities, particularly the Nikkei. They suggest that funds may be more interested now because of a greater focus on shareholder returns.

Here’s how hedge fund positions in the Nikkei are looking

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Here’s a look at hedge fund positions across the major stock indexes:

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Further, they say going into the first quarter earnings season in the U.S., net S&P 500 positions are “close to nil.” Also NASDAQ positions have been slashed again.

And here’s how hedge funds’ positions on the S&P 500 and the NASDAQ are stacking up:

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