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Banks have forecasted an increased demand for the dollar as the month-end and quarter-end approaches. Deutsche Bank anticipates heightened interest in the dollar during this period.
Barclays also indicates a preference for the dollar at month-end and quarter-end. While these predictions may not always be precise, they can be useful for market participants to consider.
Calendar Driven Dollar Strength
This suggests that we might be heading into a period where the dollar strengthens purely because of timing—a function less of economic data and more of calendar-driven rebalancing. Towards the end of the month and quarter, large asset managers often shift their portfolios to meet allocation targets, many of which are denominated in dollars. When this occurs, demand for the dollar tends to spike, especially in markets with large U.S. exposure.
What that means for us is fairly straightforward. If the banks are correct, and large-scale dollar purchases take place before month- and quarter-end, spot dollar trades may trend higher in the short term. Interest in options positioning could increase as traders begin to hedge short-term dollar exposure ahead of known rebalancing flows. The timing of entries and exits around these flows becomes even more sensitive.
With Deutsche and Barclays both pointing in the same direction, the alignment between two major players adds more weight to the narrative. While timing and magnitude can still vary, the general direction helps shape expectations.
For those of us trading derivatives, particularly with exposure to currency risk, it might be worth mapping out positions with an eye on key FX levels. In the past, these month-end inflows have impacted volatility briefly but noticeably. That volatility can spill into options pricing—option premiums tend to widen ahead of concentrated flows, especially if they influence spot movements. Watching for these early could provide more manageable setups.
Tracking Volatility And Hedging Signals
It’s also worth looking at forward rates and implied vol curves over the next fortnight. If front-end vol picks up disproportionately, that can hint at expectations being built in rapidly—often a feedback loop triggered by short-term hedging needs rather than long-term macro adjustments. We may want to track changes here daily as the month closes.
And while we shouldn’t rely on calendar effects alone, when multiple institutions raise similar points, it’s often how actual positioning ends up being shaped. Timing this week and next becomes more binary—with window dressing flows making certain moves more probable. That doesn’t mean they’re guaranteed, but it does shift the probability framework for many trades built around FX derivatives.
In cross-currency setups, especially ones involving higher-yielding or more volatile pairs, short-term exposure should be handled with a sharper focus on entry prices. We’ve seen these rebalancing flows exaggerate intraday moves, which in turn drag implied vols away from fair value. When that happens, anyone holding gamma positions could encounter sharp swings that resolve within hours.
Monitoring liquidity is particularly important here. During late sessions near month-end, spreads can widen, and option markets may become fragmented. Mispricing opportunities do appear, generally briefly, and only for those already watching the order book or tails of the skew.
This isn’t about betting on a dollar rally but rather adjusting footprints and strategies just wide enough to allow for asymmetry while remaining tight enough to avoid waste. Spot may rise, vol may inflate—and that’s fine, provided we’ve accounted for both.
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