It is that time of the month again.
We’re getting the first signals on how month-end flows might shape up trading conditions next week, with BofA’s latest rebalancing model pointing to JPY and GBP outflows against EUR inflows into the September fix.
As a quick refresher, BofA estimates these flows by using a conventional 60/40 global equity and bond portfolio. The idea is that relative moves across asset markets during the month can leave international portfolios needing to rebalance their currency exposure when we get to month-end.
And this time around, the call isn’t a straightforward one tied to the dollar.
On the euro, BofA says the expected rebalancing flows are running against its other short-term signals – suggesting that the currency may consolidate around current levels instead.
But for the quid and the yen, BofA says both its quantitative signals and the expected rebalancing flows are bearish. So, that just adds another layer of near-term selling pressure.
As always with month-end flows, I wouldn’t treat any of this as a hard directional call. These flows are notoriously difficult to pin down and tend to take on more importance as we get closer to the fix itself. If anything else, think of them as another piece of the puzzle rather than the main driver of price action.
Besides that, just keep in mind that September month-end also marks the end of the third quarter for this year. That might see added rebalancing flows in the mix considering the ocassion. So, it is worth keeping these signals in your back pocket as we approach next week’s fixing window.
This article was written by Justin Low at investinglive.com.