FX Signals From Month-End Fixing Models - Barclays, Citi

The following are the FX signals from Barclays Capital and CitiFX month-end fixing models. Month-end fixing models provide signals for trading FX on the last day of the month (Thursday December 31).

Barclays: We expect the passive rebalancing of hedges at month-end to lead to USD buying interest. Moderate signals were generated against EUR and AUD, while there were more modest signals against all the other major currencies.

"Equity markets lost some ground across developed economies as the ECB delivered less easing than anticipated, while the Fed finally started its hiking cycle. In dollar terms, the US markets underperformed as the greenback weakened against most G10 currencies, except GBP and CAD, during the month. Bond markets remained relatively stable across the board, but outperformed in dollar terms in Europe and Japan," Barclays clarifies.

Barclays' model provides signals from '+++' through neutral to '---' to indicate the strength of this month's signal relative to its own history.

Citi: The preliminary month-end FX hedge rebalancing estimate points to buying of EUR and selling of all other currencies vs USD on Thursday, 31 December. 

"The signal to buy EUR is strongest, measuring around +0.5 historical standard deviations. Euro area equities and bonds never fully recovered from the ECB surprise at the start of the month, meaning that foreign investors in euro area assets will need to buy EUR to move their FX hedges back on target.

Relatively better performance of US, Japanese and UK assets reduces euro area investors’ rebalancing needs and leaves this month’s estimated EUR flows skewed towards buying by foreign investors.

For the second month running there is no strong overall USD signal – stable US bond and equity indices have failed to create significant tracking error in FX hedges," Citi clarifies.