Month-End FX Hedge Rebalancing

From the FXWW Chatroom: Citi…Month-End FX Hedge Rebalancing: November 2016 Final Estimate

Please open the attached file to read the full report:

·       The final estimate of month-end FX hedge rebalancing flows calls for USD and JPY selling and buying of all other currencies today. The signals have not changed since the preliminary update on 24 November.

·       This month’s signal to sell USD and JPY is largely driven by the good performance of US and Japanese equities which have risen 3.6% and 5.8% month-to-date respectively.

·       Net fixed income rebalancing flows are also estimated to be negative for JPY as Japanese investors’ needs to sell off some hedges on US and Euro-Zone fixed income dominate foreigners’ needs to rebalance Japanese bond hedges.

·       The signal to buy EURUSD is the only one that exceeds 1 standard deviation this month. Both Euro-Zone bond and equity indices have done fairly badly month-to-date, leading foreigners to buy EUR on top of local investors who also need to buy EUR to increase the value of their foreign equity hedges.

·       The ADP jobs report and speeches by ECB’s Draghi and Fed’s Kaplan will probably attract the most attention ahead of the 4pm London time fix today.

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