Date: 31 Aug 2018

With the end of August having arrived, traders might well be wondering what, if any, month-end portfolio adjustment flows may affect the currency markets. With that in mind, and given the fact that (as has been covered fully in the media) the US equity markets have outperformed much of the rest of the world this month, then there might be a feeling that today could require some re-distribution within equity portfolios out of USD and into other currencies (to ensure portfolios remain balanced between different national equity markets). If true, that might well be supportive of EURUSD, which could give some hope to euro bulls who over the last few days have seen the euro fail to break out above the top of its daily ichimoku cloud (measured at 1.1724 on Thursday by IFR). At the same time such a month-end interest might not help euro bears who, while also conscious that EURUSD hasn’t broken out above the top of the daily ichimoku cloud, will also be aware that the pair hasn’t closed back below the base of that cloud (measured yesterday at 1.1656) let alone below EURUSD’s current 55-day moving average at 1.1613. The situation is complicated further by a plethora of option expiries that may exert influence on the price action until expiry at 1500h UK time. With IFR having identified 1 billion euros of expiries (xxx) at 1.1675 alone with another (almost) 1 billion at 1.1690-95, traders might rationally conclude the pair’s range could be somewhat restricted until those xxx roll off. Additionally on the topside another 4.3 billion euros of expiries are said stretched between 1.1700 and 1.1730. Once those all roll off, the currency market will likely then focus on perceived month-end demand. At that point both euro bulls and bears will have their own opinions but perhaps, at least on the day, if the option expiries have anchored EURUSD through to expiry time and if the perception that month-end portfolio requirements will necessitate a degree of USD selling, euro bulls might be a little more confident than bears entering the latter part of this month-end trading day.

by Neal Kimberley, External Currency Analyst.