Credit Agricole notes that their month-end rebalancing model is pointing to mild dollar selling as we look to wrap up the month of May.
“Global equity markets were broadly firmer in May. In FX, the USD has outperformed across the board on the month. The moves in the equity markets, when adjusted for market capitalisation and FX performance this month, suggest month-end portfolio rebalancing flows are likely to be moderate USD selling across the board, with the strongest sell signal in the case of the USD vs the AUD.”
As always, just keep this in the back pocket just in case. It is not meant to be a sure fire thing or a hard and fast rule. Typically, we can observe some volatility in terms of month-end flows especially when getting closer towards the London fix. So, just be wary of that if anything else.
That being said, I would wager that US-Iran developments are still the biggest driver of trading sentiment at this stage. And it will be tough, even for month-end flows to override the market flows tied to risk optimism/pessimism still. So, we might get some noisy signals but the wider price action should continue to follow what broader markets are suggesting.
