Credit Agricole anticipates broad-based mild selling of the USD at month-end, according to their FX rebalancing model. The strongest sell signal is expected against the EUR.
Their corporate FX flow model suggests buying EUR and selling GBP during this period. Based on these insights, Credit Agricole plans to buy EUR against a basket of USD and GBP until 1600 GMT on 31 July, unless market conditions force an early exit. No specific entry or stop levels are provided.
Positioning For A Weaker Us Dollar
We’re positioning for a weaker US dollar into the end of July, based on the firm’s rebalancing model. This suggests looking at derivative trades that benefit from a falling greenback, such as buying EUR/USD call options. The signal is for mild selling, so we shouldn’t expect a dramatic move.
This view is strengthened by the strong performance of U.S. equities this month. With the S&P 500 gaining over 3.5% in July, global fund managers will likely sell dollars to rebalance their portfolios. We see this as a predictable flow that often pressures the dollar in the final days of the trading month.
The corporate flow model also signals a divergence, favoring the euro while expecting sales of the British pound. This suggests that options on the EUR/GBP cross rate could be an interesting play, potentially buying calls to target upside. It aligns with the strategy of buying the single currency against a weighted basket.
Managing Positions With Tight Stops
Historically, these month-end flows are not guaranteed and can be overshadowed by major data releases. We must remember that this week also holds a key inflation report and a statement from the central bank. Therefore, any positions should be managed with tight stops, especially since Low notes that no specific entry levels were provided.
