Bank of America (BofA) Signals Growing Consensus Against USD, Euro Set to Shine Against NZD
Bank of America (BofA) has reported a rising sentiment against the U.S. dollar, with a significant sell-off observed last week. Investors in both the U.S. and Europe are taking net short positions on the dollar, leading to an increase in demand for U.S. dollar puts.
BofA is optimistic about the Euro's performance against the New Zealand dollar (), pointing to signals of an uptrend continuation. This view is supported by a bearish outlook on the New Zealand dollar following the Reserve Bank of New Zealand's decision to cut its policy rate by 25 basis points on August 14, 2024, with dovish guidance.
The EUR/NZD spot is currently trading near its month-to-date low at 1.81, with BofA's Technical Matrix suggesting a broad-based uptrend for the Euro. Additionally, the Comprehensive Analytical Risk System (CARS) indicates a bearish trend for the New Zealand dollar due to declining yields.
In the options market, there is a notable demand for Euro calls, as implied volatilities have increased for the pair amid decreasing overall volatility levels.
However, BofA warns of a potential risk to their bullish EUR/NZD outlook: the upcoming release of the August preliminary Eurozone Purchasing Managers' Index (PMI) data. A weaker-than-expected PMI data could challenge the current positive view on the currency pair's performance.
In conclusion, investors should keep a close eye on the developments in the currency markets, especially the Euro and the New Zealand dollar. The dynamics between these two currencies could present lucrative trading opportunities or risks, depending on the economic data and market sentiment. Stay informed and make well-informed decisions to navigate the ever-changing financial landscape effectively.