Deutsche says that its month-end rebalancing model points to month-end and quarter-end flows favouring the US dollar, potentially limiting any setback from the highs last week. Their note came out late last week but argues that the dollar does look a little stretched already since the FOMC meeting and calls to fade any further strength into month-end.
The firm flagged that the dollar didn’t show any signs of reversing despite a drop in oil prices and Treasury yields. As such, they are arguing to fade any outstretched gains in the dollar as it has the potential to mean revert in the coming sessions.
However, they did warn that relative equity performance does point to strong USD/JPY buying on month-end itself. And that could be a trigger for the currency pair to break the 162.00 mark. In that lieu, Deutsche says that Japan could intervene shortly after but would see traders taking that as an opportunity to buy USD/JPY again at better levels.
In case you missed it, the other month-end call from last week: Mild dollar buying expected this month-end – Credit Agricole
