Citi…Month-End FX Hedge Rebalancing: March 2017 Preliminary Estimate  

From the FXWW Chatroom: The preliminary month-end hedge rebalancing estimate points to minor USD buying and selling of all other currencies on Friday, 31 March.  
·       Equity rebalancing flows dominate this month’s signal. With the exception of New Zealand, the MSCI US equity index has under-performed all other markets this month. On balance, foreign investors will need to buy back USD to bring their hedges back in line with reduced US asset values and US investors will need to buy USD to increase their hedges on foreign equity holdings.  
·       The 4.4% differential between the Euro-Zone and US MSCI month-to-date performance (+3.56% and -0.84% respectively) is strongest since the January 2015 month-end. However, the overall net EURUSD sell-signal is weaker this time around because European bonds have under-performed US this month and this produces offsetting fixed income rebalancing needs.
·       This month’s USD buy-signal falls short of 0.5 standard deviations in all crosses except JPY where under-performing local equities allow foreign rebalancing needs to dominate. Despite also weak equities, foreign fixed income rebalancing needs of New Zealand based investors tilt the signal for NZDUSD to a marginal sell.
1mth Cable 25 delta risk reversals well offered for GBP puts – just 0.4. Contract has rarely seen a GBP call bias – chart  http://reut.rs/2nE90hC. Vols at low end of long term ranges – 1mth 8.5 vs 7.9 (14mth low) after FOMC.1wk vol is 8.6/120 pips break even. 1.1bln 1.2600 expiry Fri could attract.
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