Month-end FX hedge rebalancing expectations
July 26 (Reuters) -Barclays have released signals from their proprietary month-end rebalancing model and it indicates a weak USD buying against most of the major currencies by month end, with a moderate signal on USD/JPY due to the significant JPY appreciation this month.
Barclays note that the confluence of mixed US data, renewed focus on the US election and a fairly weak earnings season has triggered sharp FX moves in the course of what looks like a broad positioning squeeze. Bond markets have rallied across the board as Fed easing is brought forward.
At the same time, equity markets are in the midst of a sizable correction due to earnings misses and sector rotations. On net, the large market cap in US equity markets is offsetting hedging flows on the margin, inducing the model to produce a weak dollar-buying signal against majors, with the exception of JPY.
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(Richard Pace is a Reuters market analyst. The views expressed are his own)
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