Citi: Global Flows

From the FXWW Chatroom: On a week-over-week basis the underlying flow story doesn’t change from last week’s report.  Hedge funds continue to buy back USD’s sold over the past month – with ample room before positioning would be considered flat (page 13).
Stepping back for a moment – we want to point out that real money clients have also been shifting their US$ demand over time, even if this is more subtle. Our chart of the week (a combination of 25-week and 4-week flows) highlights that RM accounts net $ supply over the past 5 months has been falling. That “bigger picture” is critically important – exchanges rates are about equilibrium. They are driven as much by a loss of supply as increase in demand.
For short-term trades – where HF & RM agree is in selling EUR, buying CAD and (more recently) selling AUD. On the EM side – the bottom line remains unchanged as well. Clients are reducing their EM exposure of the past few months (net-buying), with EM Asia the most sensitive positioning wise. This leaves us very biased to buy USD-ASIA. G10 traders should continue to sell AUDUSD, and AUDCAD.

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