Credit Agricole’s month-end rebalancing model suggests that the US dollar could experience mild selling pressure. This is expected as the dollar is likely to be offered across all currencies due to gains in US equities during August. Even with the dollar being stronger this month, adjusted gains in equities signal slight selling pressure. The Norwegian Krone (NOK) is predicted to feel the most selling, while other G10 currencies will see only minor dollar selling as we approach the month-end fix.

Expecting Dollar Selling Pressure

We expect some mild selling pressure on the US dollar as August comes to an end. The S&P 500 has increased by over 3.5% this month, leading global funds to rebalance their portfolios by selling outstanding US stocks. This process typically involves selling dollars to purchase assets in other currencies. For derivative traders, this points to considering short-term bearish strategies on the dollar before the London fix on Friday. Options like weekly put options on the USD or call options on major currencies such as the Euro are reasonable approaches to take advantage of this trend. Since this signal is “mild,” it is advisable to choose low-cost options rather than aggressive outright short positions, especially since the Dollar Index (DXY) is still up by 1.2% this month. The USD/NOK pair shows the most significant signal, with expectations of dollar weakness. Brent crude oil prices are steady around $85 a barrel, and the Norwegian Krone lacks a strong catalyst, making the equity rebalancing flow even more significant. Traders could consider selling short-dated USD/NOK call options to benefit from potential declines toward the end of the week.

Ongoing Patterns in Dollar Weakness

This month-end pattern is something we see often, similar to what occurred in late 2023 when a strong equity spike led to brief dollar weakness. It’s essential to remember these flows can be temporary and may quickly reverse at the start of the new month. Hence, managing any positions with tight stops or defined risk is important, as the dollar’s overall strength could return in early September. Create your live VT Markets account and start trading now.

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