Month-End FX Hedge Re-balancing: April 2016 Preliminary Estimate

From the FXWW Chatroom: · The preliminary estimate of month-end FX hedge re-balancing flows calls for JPY selling and buying of other currencies vs USD on Friday, 29 April.
· Strong gains in Japanese equities and bonds (+4.85% and +1.29% month-to-date respectively) have left foreign investors in Japanese assets under-hedged, meaning that they will need to sell JPY to increase hedges. At around -0.9 standard deviations the JPY sell-signal is strongest since September 2014.
· Equity indices rose in other markets too, but the gains were more moderate and bond indices were generally weak. The resulting performance mix gives small buy-signals vs USD in all other currencies. However, the signals are weak by historical standards and fall short of 0.5 standard deviations.
· Most of the month-end event risk will be concentrated earlier in the day with markets probably focusing on the euro area CPI and GDP releases and Dallas Fed’s Kaplan’s speech.

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