HALISTER1: Hedge Fund, Real Money FX Divergence Equals Volatility: BofAML

Hedge Fund, Real Money FX Divergence Equals Volatility: BofAML

(Bloomberg) -- Positioning analysis suggests hedge funds expect monetary policies to diverge more than real money investors, while both are long risk, Bank of America Merrill Lynch analysts led by Athanasios Vamvakidis and Myria Kyriacou write in note today.
  • FX moves will depend on who is correct, which may lead to volatility even in a risk-on environment
  • Analysis of in house data suggests:
  • Buy volatility in major currencies, it could perform even in risk-on scenarios
  • Long AUD and NOK against NZD and EM outside Asia could work in most scenarios, as AUD and NOK positions are not stretched
  • Long NZD, long LATAM and EMEA in EM seem to be most stretched risk positions in FX
    • In a risk-on scenario, real money could be prompted to buy AUD and NOK
    • In a risk-off scenario, both real money and hedge funds could be prompted to sell NZD and EM outside Asia
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Athanasios Vamvakidis (Merrill Lynch International)
Myria Kyriacou (Merrill Lynch International)

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