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(Z1) Off Lows, But Remains Weak


Still Vulnerable


Bullish Price Sequence

  • Citi's prelim month-end model writes that both US and foreign equity investors are to be marginal USD buyers in May as US names need to hedge gains in foreign equities and foreign names need to reduce hedges in US equities.
  • From fixed income investors, Citi see net fixed income hedge rebalancing to be mildly USD negative, driven by US investor need to reduce hedges in foreign bonds. The USDJPY buy signal is the only signal to exceed 0.5 SD as Japanese investors likely need to sell JPY to reduce hedges in foreign bond space.
  • For the cross-asset view, their model suggests a need to rotate out of equities and into bonds (at around 0.2 historical SD). They see inflows into both Japanese and the US local equity and fixed income markets.
  • Barclays' FX model corroborates this view, pointing to moderate USD buying into the May close.
  • Worth noting for that the WMR fix for this month falls on Monday 31st May - a UK Bank Holiday - which may prompt some of these flows to be brought forward to the Friday fix instead.

MNI London Bureau | +44 203-865-3809 |
MNI London Bureau | +44 203-865-3809 |