Viewpoint - The USD & July month-end

The DXY USD Index has lost just over -1.0% in July so far, losing its 105.00-plus status in the process.

And see table above, the USD looks a mid-ranking performer this month so far, losing most ground vs the intervention and more hawkish BOJ fuelled YEN. With risk appetite at times fragile and some fairly heavy stocks losses later in the month the USD gained most vs Scandi FX and the commodity bloc amid global growth worries.

Barclays

From the UK bank's perspective, their proprietary month-end rebalancing model indicated Thursday a weak USD buying signal by month-end, with a moderate signal on USD/JPY due to significant YEN appreciation MTD.

Barclays goes on the confluence of mixed US data, renewed focus on the US election and a fairly weak earnings season has triggered sharp FX moves in the course of what looks like a broad positioning squeeze. Bond markets have rallied across the board as Fed easing is brought forward. At the same time, equity markets are in the midst of a sizable correction due to earnings misses and sector rotations. On net, Barclays continue the large market cap in US equity markets is offsetting hedging flows on the margin, inducing the model to produce a weak USD-buying signal against majors.

The exception is YEN, where significant and sharp appreciation in recent days increases rebalancing needs/Dollar buying at month-end.

Barclays, however, caveat that such a moderate USD-buying flow may extend to other pairs should US equity markets continue to sell off rapidly. Besides, their sentiment index indicates that USD sentiment has turned more neutral since last week, which could also suggest a relatively stable USD into the upcoming Fed meeting and key US data releases later in the week.

BofA

Thanks to the investment house who write from broader trends in equity markets, it suggests this will be positive USD month-end given the relative underperformance vs European equities in particular. USD buying for month end due to equity market weakness last occurred in April against the backdrop of the geopolitical shock.

BofA continue with a focus on CHF, saying mixed signals from equity and FI but bias for marginal USD buying vs CHF into month-end. The well followed US firm suggest July traditionally is a strong month for CHF buying on strong equity performance. Their bias is to go with any USD/CHF buying momentum, with August a good USD/CHF month and SNB on track to deliver more cuts.

French bank

Via contacts, we hear that CA see the USD as neutral, but their corp flow model suggests EUR buying.

More

Please look out for month-end related reports on these pages ahead of Wednesday's window.

The tech view

• Attempting to extend rally from 103.650 (17 Jul low) toward 105.208 (9 Jul high), although the 50-DMA near 104.890 may be in the way
• A relapse ahead of 105.208 could send USD falling toward 103.567/ 103.172 (50% retrace of 100.617-106.517 rally/21 May higher low)
• The USD is somewhat vulnerable beneath 106.130 (26 Jun high) but above 106.517 (16 Apr YTD high) exposes 107.348 (3 Oct 2023 peak)

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