What Happened at the Month-End Fix?

Although still below the average of 2023, May’s month-end Fix provided more serious market impact for users of the five-minute calculated WM rate, especially in USD/JPY – across the portfolio of nine currency pairs it was the second highest saving thus far in 2024 when compared to the longer 20-minute Siren FX calculation.

In spite of the higher impact, only USD/JPY – and to a lesser degree USD/CAD provided savings in excess of the 37-month average, it was a particularly quiet month for EUR/USD and AUD/USD – the former of which provided its lowest savings yet, and double-digit savings for only the third time, albeit $46 per-million is not something to be sniffed at if you are trading billions.

To provide more context, the table below also presents projected dollars per million savings across a portfolio of different pairs using a correlation with the Fix calculation, depending upon how much flow was in the direction of the market, or “with the wind”. The Full FX verifies monthly that the WM rates used here are a reasonable reflection of that fixing, however for the second month in a row, there is a disparity highlighting the different calculation methodologies.

In USD/JPY, sources confirm that the WM month-end rate was actually 157.145, however according to the calculation using higher frequency New Change FX data, it was 157.123. This is the second month in succession that there has been a notable divergence after the same happened in NZD/USD at the April month-end.

*According to Siren FX calculation using NewChange FX data

** Savings are in dollars per million by percentage of correlation to the Fix flow. Blue cells signify a projected saving using Siren, Red cells a saving using WMR

As noted, there was a notable difference – over $1150 per million – in USD/JPY, with the market exhibiting a classic pattern of hedging ahead of the Fix, triggering speculative buying, and thus having a significant market impact. Having traded steadily in the run up to the Siren FX window – which more reflects the actual execution style of the brokers, rather than the five-minute window, dollar buying started and continued steadily into the WM window, at which point it exploded higher, rising some 30 points before drifting lower into the close of the five-minute window as speculators took profits.

Source: Siren FX

The price action actually suggests that perhaps the pre-hedging needed to take place over a longer window, certainly the market seemed to struggle with the weight of buying around 4pm London. This again highlights the difference between a shorter and longer calculation – the latter better reflects the actual outcome of the trading on behalf of the customer.

Every month, The Full FX is selecting an emerging market currency pair at random, and before the data is available, to broaden the analysis – this month the selected pair is USD/ZAR. Data is again provided by Siren FX according to the same guidelines in place for the regularly reported currency pairs.

As was the case with the yen, USD/ZAR saw significant buying interest ahead of the WM window, resulting in the highest saving in the selected emerging market pair since January 2023. In this instance the pre-hedging was even more pronounced ahead of the five-minute calculation, the actual WM window saw two way price action, resulting in a slightly higher exit point than entry. Having risen over 20 big figures in the run-up, it only went 300 points higher and lower – it also dropped away after the window, suggesting speculative profit taking.

The $2,225 per-million saving is the highest yet when the rand has been selected and is the fifth most in the 36 months The Full FX has been tracking results, behind three huge HUF and one TRY events.