Bank of America (BofA) reported a growing consensus against the US dollar, with a noticeable sell-off taking place last week. Investors in both the United States and Europe have taken net short positions on the dollar this year. Demand for US dollar puts (options to sell the currency) is on the rise.
BofA this week highlighted a bullish outlook for the euro against the New Zealand dollar (), citing signals of a continuation of the uptrend. This perspective is consistent with a bearish stance on the New Zealand dollar following the Reserve Bank of New Zealand’s (RBNZ) decision to cut its policy rate by 25 basis points on August 14, 2024, accompanied by dovish guidance.
The EUR/NZD spot is trading at a handle of 1.81, which is close to the low of the month so far. BofA’s Technical Matrix suggests a continuation of the uptrend for the broad-based euro, and the Comprehensive Analytical Risk System (CARS) indicates a bearish trend for the New Zealand dollar due to falling interest rates in New Zealand.
In the options market, there is significant demand for eurocalls (options to buy the currency) as implied volatility for the pair has risen against a backdrop of generally declining volatility.
However, BofA notes a potential risk to their bullish EUR/NZD outlook: the upcoming release of preliminary Eurozone Purchasing Managers’ Index (PMI) figures this week. If the PMI data is weaker than expected, it could call into question the current view on the currency pair’s performance.
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