What Happened at the Month-End Fix?

Amidst a generally quieter month end, with savings below average on offer for using a longer fixing window, there were still pockets of market impact, not least USD/JPY, which offered potential savings above the long-term average for the second month in a row.

The overall potential saving from using the 20-minute Siren FX fixing across a portfolio of currencies was $321 per million, a significant sum, albeit the fifth lowest in the 38 months since The Full FX starting publishing data. Across that period the average saving is just over $638 per million.

Once again, the WM Fix data is calculated using New Change FX data, and it highlights differences with the actual WM data, which is calculated on a less-frequent time scale. As an example, EUR/USD shows a potential saving of $224 per million using Siren rather than the five-minute WM Fix, however sources tell The Full FX that the actual EUR/USD WM rate was 1.07175, another 30% worse than that used to calculate the savings, thus the data underestimates that saving. This difference in the data is repeated in the other currency pairs with the exception of USD/CAD (WM is 0.00003 inside the NCFX calculation), and USD/JPY (0.005).

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.

*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

For the second month in a row, the largest potential savings were available in USD/JPY, something that should be a concern given its position as the second busiest currency pair in FX markets.

Price action demonstrates a classic hedging ahead of the Fix pattern, with the market rising 30 pips in the run up to the opening of the WM window, before continuing higher, by around another 10 pips during that five-minute calculation. Also of note was the reversal towards the end of the window – again a typical pattern. There was clearly demand for USD/JPY, the pair stayed high in the minutes after the fixing, which suggests that yet again, the actual size being traded was much too big for a five-minute window.

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/HUF. Data is again provided by Siren FX according to the same guidelines in place for the regularly reported currency pairs.

Conversely, while there was also clearly hedging ahead of the Fix in USD/HUF, it was in the other direction, with the forint in demand. Again the demand seems to have stemmed from the Fix, with price action either side relatively directionless, and in the run up to the WM window, the market shifted from above 369.6, to 368.4, before there was actually a bounce into the WM Fix, when selling resumed.

At $705 per million the potential savings in USD/HUF sit  below the 37-month average of over $1,126 per million, but they are down on the $2,225 per million seen last month in USD/ZAR.