Bank of America (NYSE:BAC) (BofA) reported a growing consensus against the U.S. dollar, with a noticeable sell-off occurring last week. Investors in both the United States and Europe have taken net short positions on the dollar for the year. The demand for U.S. dollar puts—options to sell the currency—has been on the rise.
BofA highlighted a bullish outlook on the Euro against the New Zealand dollar (EUR/NZD) this week, citing signals of an uptrend continuation. This perspective aligns 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 on a 1.81-handle, which is near the month-to-date low. BofA's Technical Matrix suggests a broad-based uptrend continuation for the Euro, and the Comprehensive Analytical Risk System (CARS) indicates a bearish trend for the New Zealand dollar due to falling New Zealand yields.
In the options market, there has been a significant demand for Euro calls—options to buy the currency—as implied volatilities have risen for the EUR/USD pair against a backdrop of generally declining volatility.
However, BofA notes a potential risk to their bullish EUR/NZD outlook: the upcoming release of the August preliminary Eurozone Purchasing Managers' Index (PMI) data this week. If the PMI data is weaker than expected, it could challenge the current view on the currency pair's performance.
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