MUFG Research discusses the month-end U.S. equity rebalancing impact on EUR/USD.
"That “end-of-month rebalancing flows” could impact the US dollar is a hypothesis whereby the US dollar has an outsized decline or appreciation near the end of the month, based on respectively whether US equities have performed well or poorly in that month," MUFG notes.
Typically, month-end FX re-balancing flows is felt most going into the 4pm London fix on the last trading day of the month. However, MUFG found that the strongest correlation is found when you measure the change in S&P500 from the first day of the month to the 3rd last day, and the performance of EUR/USD over the last 2 days of month.
"Overall, these results point to modest EUR/USD weakness during the last days of this month," MUFG concludes.
