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Foreign Exchange

FX news: Don’t be too long, or too short, of the dollar

Analysis by the CitiFX quantitative investor solutions (QIS) group “suggests that investors will be on balance net sellers of USD to bring their hedges in line with the increased value of their US assets.”

The QIS report notes that US equities are up and that government bonds are stable over the month. Hence foreign investors wishing to be FX neutral will need to sell their positive USD mark-to-market. The QIS model is based on surveys of “asset mix and hedging behaviour of large institutional investors,” they say, and gives a strong USD sell signal of almost 1.5 standard deviations. The strongest buy signals are for SEK, CAD and NZD, all of which exceed 1.5 standard deviations.

If I read the analysis correctly, it would be prudent not to be very long of USD/CAD or USD/SEK or too short of NZD/USD going into today’s and perhaps Monday’s fixings.

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