Tactically fade the USD rally this week, says BofA

Investing.com — Financial institution of America analysts stated they’re snug tactically fading the current rally within the U.S. greenback this week, citing a number of reversal indicators and market dynamics.

The financial institution’s FX Quant Perception report highlights elements akin to decrease U.S. Treasury yields, diminished USD demand, and a holiday-shortened buying and selling week within the U.S.

“We’re snug to tactically fade the USD rally this week on pattern reversal indicators, decrease U.S. yield, and the U.S. vacation,” BofA wrote.

The greenback’s month-to-date power is alleged to have been primarily pushed by U.S. and Asia-based buying and selling classes.

Nonetheless, the financial institution’s analysts anticipate muted exercise throughout U.S. buying and selling hours this week as a result of Thanksgiving vacation, which might dampen the momentum behind the dollar’s positive factors.

A key sign within the report is BofA’s bullish view on NZD/USD, figuring out it as the very best foreign money pair to fade USD power.

“Our quant framework is bullish NZD/USD this week on the again of NZD name choice circulate and the spot pattern reversal sign,” the analysts famous.

Improved NZD valuation is alleged so as to add to the enchantment, though BofA notes that dangers stay, akin to a extra dovish-than-expected Reserve Financial institution of New Zealand (RBNZ) assembly.

Moreover, the financial institution’s technical fashions present USD uptrend reversal indicators in opposition to the New Zealand greenback, British pound, and Swedish krona.

For GBP bulls, the financial institution stated it will be positioning for a decrease EUR/GBP construction, as “choice demand for EUR calls stays muted, and pattern evaluation reveals a number of downtrend continuation indicators for EUR-pairs.”

A 7-basis-point drop in 10-year U.S. Treasury yields, influenced by the nomination of Treasury Secretary Bessent, additional helps a bearish USD view.

“Bessent has advocated a extra gradual roll-out and transactional nature of tariffs coverage, decreasing bullish USD danger premium,” BofA wrote.