USD demand increasing in the near term. The reasoning was as follows:
With the 3 month maturity in the majority of cash markets extending over the June/July half year turn on Monday for the first time the dollar funding demand in USDJPY and EURUSD fx forward swaps should increase this week.
The spot date in FX cash markets is April 1 today which means that the 3 month end date for most FX swap markets is July 1. STIR traders will now be looking to pre-position for the half-year turn. With cross currency basis levels in the 3-mo. tenors well off their recent wides , there is good reason to become over borrowed USD in that maturity bucket.
With regard to the March/April quarter end turn (which also marks Japanese fiscal year end), the demand for USD through JPY is much higher than it is through EURUSD. The author of this Bloomberg article, Richard Jones, used the FXFA terminal function to point out that the implied yields for (March 31-April1) dollars via USDJPY is 7.2% with a 280bps bid-ask spread.m Via EURUSD, the mid implied yield is 2.93% with a 100bps bid-ask spread. This is a reminder of the advantage it is to be long USD over the turn vs JPY and EUR in the funding markets. It also points to why 3-mo, USDJPY and EURUSD cross currency basis this week will favour USD borrowing
With the 3 month maturity in the majority of cash markets extending over the June/July half year turn on Monday for the first time the dollar funding demand in USDJPY and EURUSD fx forward swaps should increase this week.
The spot date in FX cash markets is April 1 today which means that the 3 month end date for most FX swap markets is July 1. STIR traders will now be looking to pre-position for the half-year turn. With cross currency basis levels in the 3-mo. tenors well off their recent wides , there is good reason to become over borrowed USD in that maturity bucket.
With regard to the March/April quarter end turn (which also marks Japanese fiscal year end), the demand for USD through JPY is much higher than it is through EURUSD. The author of this Bloomberg article, Richard Jones, used the FXFA terminal function to point out that the implied yields for (March 31-April1) dollars via USDJPY is 7.2% with a 280bps bid-ask spread.m Via EURUSD, the mid implied yield is 2.93% with a 100bps bid-ask spread. This is a reminder of the advantage it is to be long USD over the turn vs JPY and EUR in the funding markets. It also points to why 3-mo, USDJPY and EURUSD cross currency basis this week will favour USD borrowing