USD inflows:
- The bank expects rebalancing flows to favor the USD, driven primarily by the need to shift out of overperforming EUR-denominated assets and into USD assets. Despite the broader trend of USD depreciation observed recently, the near-term flows are expected to support the Dollar, potentially mitigating some of the recent downside pressure.
EUR outflows:
- The bank is looking for EUR outflows as rebalancing flows are expected to move out of Eurozone assets, particularly given the relative outperformance of European bonds compared to their US counterparts.
These reports are useful to keep in mind but I never use them as a signal or trigger. The downside in the EUR yesterday was driven by the fall in German CPI, and the bounce in the USD driven by mostly stretched price action and the better-than-expected data. However, since this is the official last day for rebalancing, it’s worth watching the price action with the above in mind at the 4PM London Fix.
This article was written by Arno V Venter at www.forexlive.com.
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