Some slight dollar selling likely to be the case for this month-end – Credit Agricole
The note from Credit Agricole here is in direct contrast to what BofA’s month-end fixing model is arguing. From earlier: Month-end fixing to be mildly supportive of the dollar – BofA
Based on their own month-end rebalancing model, Credit Agricole says that some light selling in the dollar is more likely to materialise this month-end instead.
“Global equity markets were broadly firmer in August. In FX, the USD was broadly weaker on the month. Overall, the moves in equity markets, when adjusted for market capitalisation and FX performance this month, suggest 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 JPY."
So, what can we extrapolate from the two conflicting views?
As always, it is best to remember that there is no exact science in deciphering or making sense of the impact of these rebalancing and fixing flows. I will always point out the notes from the banks when I can, but they are more of an elective signal. These are by no means hard and fast calls that point to what will exactly happen when we get to month-end trading and/or closer to the London fix during this period.
More often than not, the signal is just to gauge how messy things could potentially be when we get to the final stages of any month. And even more so, when we get key risk events on the economic calendar such as the one coming up later today.
All month-end flows will do is just kick up dust and perhaps make certain price movements more difficult to interpret. But when the dust settles, the main focus is what and how markets react to the key risk events instead – as it should be.
For this month in particular, both Credit Agricole and BofA are arguing that month-end action is likely to be more mild. Thus, even with conflicting signals, they are merely suggesting that any impact from these flows are not likely to be as substantial. But again, there is no hard and fast rule to say that something will happen and that one of them might be right.
At the end of the day, this is just one small element that makes up how price action behaves. It is just like how one would view the FX option expiries list. Overall dollar sentiment, technical considerations, and other fundamental factors in play are just as important to be wary of.
The signal here is merely an additional tool to add to your back pocket, just in case you need more details to make an informed decision when executing trades at the end of the month. It’s just that at the end of the day.
This article was written by Justin Low at investinglive.com.