Credit Agricole sees light dollar selling for month-end

A Credit Agricole note takes a different view from BofA's month-end fixing model. BofA had earlier suggested that month-end flows would be mildly supportive of the dollar (Month-end fixing to be mildly supportive of the dollar - BofA).

Using its own month-end rebalancing model, Credit Agricole instead sees a higher probability of light dollar selling at this month-end.

"Global equity markets were broadly firmer in August. In FX, the USD was broadly weaker on the month. Overall, the moves in equity markets, when adjusted for market capitalisation and FX performance this month, suggest month-end portfolio-rebalancing flows are likely to be mild USD selling across the board with the strongest sell signal in the case of the USD vs the JPY."

What can be drawn from these opposing perspectives?

As ever, it is worth recalling that analysing the impact of rebalancing and fixing flows is not an exact science. The bank notes are pointed out whenever possible, but they serve as elective signals. These are not definitive predictions of what will occur during month-end trading or the London fix.

Frequently, the signal is merely a way to assess potential disorder during the final stages of any month. This is especially true when key risk events on the economic calendar are approaching, such as the one later today.

Month-end flows only stir up noise and can complicate interpretation of certain price moves. Once that noise clears, the primary focus should be on how markets respond to key risk events, as is appropriate.

This month, both Credit Agricole and BofA contend that month-end activity will be relatively mild. Therefore, despite opposing signals, they only indicate that the impact of these flows will probably not be significant. Still, there is no definitive rule that one of them will be correct.

Ultimately, this is only one minor component of price action. It is similar to viewing the FX option expiries list. Overall dollar sentiment, technical factors, and other fundamental elements are equally important to monitor.

This signal is just an extra tool to keep in mind, in case additional details are needed for informed trading decisions at month-end. That is all it is.