Citi Final end Month Call

From the FXWW Chatroom: The final estimate of month-end FX hedge rebalancing flows continues to call for USD buying today. The strength of the average USD buy-signal excluding USDJPY is strongest since May 2010.

The signal is driven by the sharp month-to-date drop in global equity indices, which means that equity investors across the globe will need to reduce their outstanding hedges. Equity hedge rebalancing flows will likely out-weigh fixed income investors’ flows this month.

Given that US equities are a dominant component of global indices and investors outside the US traditionally employ higher hedge ratios, foreign investors’ USD buying needs dominate selling of USD by US domestic investors.

The signal to sell JPY vs USD is significantly weaker due to the greater than average drop in Japanese equities, which means that foreign investors will also need to buy back JPY to reduce their hedges.

The most significant event risk ahead of the 4pm London time fix on Friday will probably come from the advance release of US Q4 GDP.

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