Hedge Funds Keep Betting Wrongly On USD Peak

By Garfield Reynolds, Bloomberg Markets Live reporter and analyst

Leveraged funds trimmed their USD longs by the most in three months for the week to Sept. 20, just in time for the greenback to soar once more as the Fed doubled down on policy hawkishness.

Markets are still seemingly incapable of believing that central banks no longer have their backs, which highlights the potential for further declines across assets despite the pain already inflicted.

The net USD long from leveraged funds across currencies dropped by about 39,000 contracts in the week to Sept. 20. The biggest drop was in USD/JPY longs — undoubtedly spurred by the BOJ FX rate checks that turned out to be a key move to prepare for actual intervention. The rest of the action saw a large jump in GBP longs, and a big reduction in the net AUD short to the smallest such bet since May.

The yen change was the one where funds, given clear guidance from a central bank, got things right. Barely. The yen is up 0.1% since Sept. 20, the day of the CFTC data, the only pair covered by the contracts to register a gain. GBP has tumbled 5% and AUD by 2.4%.

Looks like leveraged funds getting squeezed is the cherry on top of a few pain cakes out there this week.