The foreign exchange market is approaching a point where the issue of positioning is gaining in importance relative to the fundamental backdrop. Over the past couple of weeks, some trends have emerged that could be explained by the development of crowded trades, namely those involving USD or carry trades.
Although the fundamentals supporting those positions look pretty strong, traditionally, positioning at very high levels is often associated with surprises.
Positioning becomes crucial in FX markets
According to JustMarket, a real-time trading platform, the dollar is underpinned by higher interest rates and delayed expectations of easing, while the number of carry trades is growing. As a result, traders may face certain risks due to insufficient diversification.
Under crowded trade conditions, traders’ decisions may depend not only on the fundamental background or monetary policies. Market positioning may become an additional important factor.
Why crowded trades may be very problematic
Firstly, it should be noted
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