How Can You Trade the EUR in This Last Couple Days of the Month?

In July, global equity markets stayed mostly stable. The US dollar had a mixed performance in the foreign exchange market throughout the month. Overall, when we look at the equity markets after considering market capitalization and exchange rate changes, it seems that the portfolio rebalancing at the end of the month will be neutral.

USD Index H4 

 Source: TradingView One of my models, which tracks corporate financial activities, suggests there might be an increase in demand for the Euro towards the end of the month, most probably this week as it is the last couple days of the month plus a new month ahead. However, without strong signals from my month-end rebalancing model, I’m not making any specific trade.

As I’ve explained in my recent report about upgrading the month-end rebalancing model, this model generates signals for major currency pairs involving the US dollar (G10 USD-crosses). It does this by comparing how the US stock markets are performing relative to other G10 markets, adjusting for exchange rates and market size. I then use these signals to decide the makeup of a portfolio consisting of these currency pairs.

I create these signals by looking at the net corporate EUR flows, focusing on how much EUR is being bought or sold by companies in the days leading up to the end of the month. If there's a net buying of EUR, it suggests a buy signal, while net selling suggests a sell signal before the month-end. I combine this corporate EUR flow signal with the signals from our rebalancing model. If the data aligns, we fully commit to buying or selling EUR/USD at the end of the month. If the signals don't match up, I stick to my initial rebalancing model and adjust the portfolio weights for the G10 USD-crosses accordingly.

EUR Net Percentage Through COT

 Source: Prime Market Terminal - BLSSince I’ve deployed this strategy, it has performed well, achieving an annualized return of 3.1% since 2012, with a success rate of 72.3% and a Sharpe ratio of 1.7. It has improved upon the results from just using the FX month-end rebalancing model alone, which showed an annualized return of 1.8%, a success rate of 64.4%, and a Sharpe ratio of 1.1.

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