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.
