01

Year-End Mechanics: Flows Over Fundamentals

December forex isn't driven by fresh macro data — it's driven by balance-sheet realities:

  • Rebalancing flows: Pension funds and SWFs reset to benchmark weights. Dollar's outperformance forces buying
  • Window dressing: Managers juice returns by rotating into winners. Long dollar has been THE trade
  • Thin liquidity: Desks thin out from mid-December, amplifying directional bias
02

Institutional Favorites

The pros aren't swinging for fences in thin markets — they're riding trends with carry:

  • Long USD/JPY: Still the king. BOJ delayed, carry rebuilding. 165–170 in sight before New Year
  • Short EURUSD: Eurozone growth anemic, ECB cutting. Grinding toward 0.95–0.98
  • USD vs EM basket: USDMXN, USDTRY, USDBRL for carry and structural weakness

Positioning data backs it: CFTC specs are long dollar but not extreme — room for more.

03

Risks and January Flip

The big caveat: year-end flows can reverse violently in January. Once rebalancing is done, the dollar can give back gains fast if positioning is too crowded.

Watch for signs of exhaustion — extreme spec longs, sharp VIX drops, or surprise dovish Fed whispers. But right now? The path of least resistance is higher DXY into Christmas.

04

Bottom Line

Institutions trade November-December with discipline: ride the mechanical dollar bid, collect carry where it exists, and let thin liquidity do the heavy lifting.

This isn't the time for exotic pairs or counter-trend bets — it's about leaning into the regime that's worked all year.

We're keeping selective long-dollar exposure, favoring USD/JPY and high-carry EM shorts. The real conviction remains elsewhere — maximum metals allocation as the only true hedge.