Institutional Insights - FX Month End Rebalancing

The model-driven month-end FX hedge rebalancing expectations are being released by banks

Deutsche Bank is indicating that there may be a supply of USD. The bank observed that significant rebalancing signals on the relative equity performance have been produced by post-election movements in US assets, with the greatest signals in their model being EURUSD demand and USDSEK and USDCHF supply. As the month draws to a close, Deutsche Bank has repeatedly noted the lack of demand for USD from the US corporate base. They can experience a quite subdued month-end if this USD demand enters the market at the same time as the equities rebalancing flows. Deutsche also observes a very consistent theme across the G10 of USD supply on the first day of December (averaging roughly 0.3%) when reviewing the seasonality in November. Although the G10's pre-month-end seasonality is less evident, USDNOK demand T-2 and USDJPY supply T-2 are notable.

Credit Agricole signals that month-end portfolio rebalancing flows are likely to be mild USD selling across the board with the strongest sell signal in the case of the USD vs the EUR. Our corporate flow model further points to EUR buying at the end of the month. Subsequently, we entered a trade to buy the EUR against an equally-
weighted basket of USD and GBP. Unless we are stopped out of the trade (-1% loss), we intend to hold the
position until 29 November at 17:00 GMT.