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Citi's Final Month-End Model Strengthens USD/JPY Buy Signal

FOREX
  • To add to the earlier coverage of month-end, Citi's final model points to USD buying, particularly against JPY. This signal has strengthened since the preliminary update and now exceeds the historical norm in most crosses.
  • For the USD, they write that foreign investors are left over-hedged on US assets, leading to a net USD buying need. Equity hedge rebalancing needs explain 87% of the signal in September.
  • The signal to buy USD and sell JPY is the most significant of all pairs surveyed due to strong gains in Japanese stocks which mean foreigners will likely need to sell JPY to hedge gains, adding to domestic JPY selling needs to reduce foreign asset hedges.
  • Lastly, the weak performance of Eurozone equities and bonds somewhat reduces the signal to sell EURUSD, making it the only signal to fall short of one SD.
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