Bank of America (BofA) announced growing consensus on the US dollar, with a notable sell-off last week. Investors in both the US and Europe took net short positions on the dollar for the year. Demand for short positions for the US dollar – currency call options – rose.
Bank of America highlighted a bullish outlook for the EUR/NZD this week, citing signs of a continued uptrend. This perspective is in line with the bearish stance of the New Zealand dollar following the decision of the Reserve Bank of New Zealand (RBNZ) to cut the interest rate by 25 basis points on August 14, 2024, accompanied by cautious guidance.
EUR/NZD is trading at 1.81, close to its lowest level since the beginning of the month. Bank of America’s technical matrix indicates that the euro’s broad-based uptrend continues, and the Comprehensive Risk Analysis System (CARS) points to a downside for the New Zealand dollar due to lower New Zealand yields.
In the options market, there was a high demand for euro call options – currency buy options – as the implied volatility of the EUR/USD pair rose on the back of lower volatility in general.
However, Bank of America is signaling a potential risk to their bullish outlook for EUR/NZD: the next release of preliminary August PMI data in the Eurozone this week. If the PMI data is weaker than expected, it could challenge the current view on the performance of the currency pair.
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This article was translated with the help of an artificial intelligence program after an editor’s review. For more details please refer to Banha Terms and Conditions
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