Bets against the greenback build ahead of US data dump

Investing.com -- The dollar’s stumble is not nearing an end, BofA strategists warn, pointing to bearish quant signals and options flow that suggest investors are leaning harder against the greenback ahead of this week’s key U.S. data, including nonfarm payrolls delayed by the record-long government shutdown.

“The USD broadened its downtrends against G10 FX peers last week after a dovish Fed guidance,” the strategists said in a recent note, adding that “ahead of tomorrow’s [Tuesday’s] NFP release, FX quant signals continue to point to USD weakness.”

The U.S. Bureau of Labor Statistics is set to release both the October and November employment reports, though key details including October’s unemployment rate won’t be included, owing to the impact of the government shutdown.

Option flow “shows investors chasing USD weaker ahead of US data this week,” the strategists said. The strong demand for euro calls versus dollar puts and a “+1.5 z-score” on weekly EUR call flow, underscoring that the EUR/USD uptrend “is far from stretched," they added.

That setup signals "bullish EURUSD,” with the strategists preferring to play dollar weakness via higher EUR/USD “as EUR increasingly acts as the anti-USD in the G10 complex.”

Looking ahead, BofA reiterates a long six‑month 1.23 digital call trade on EUR/USD, initiated in late November when spot was at 1.1530, though the option cost is now 15.9% higher that in November following a jump in the spot to around 1.1750. Near term, the bank flags upside risks to the dollar from “stronger than expected US labor data, higher than expected US inflation, and a less hawkish ECB,” but for now the balance of quant signals still leans against the greenback.

The bearish dollar story also shows up in the cross‑section. BofA’s technical matrix points to “bearish continuation” for the USD versus EUR, GBP, CAD and SEK.

Emerging‑market FX also has a role to play in dollar weakness, with the strategists pointing to volatility and skew indicators that support the USD/MXN downtrend.

You May Also Be Interested In

• Selloff in memory stocks is "a healthy reset", Morgan Stanley says
• ECB policymakers eye interest rate Pause in July - Reuters
• Oppenheimer sees little strategic case for Tesla-SpaceX merger