According to BofA, while there may be an initial uptick in the dollar, the broader trend suggests a bearish outlook for the currency.
The analysts point to a bearish triangle pattern in the US Dollar Index (DXY), which indicates potential declines to around 98.98 and possibly into the mid-96s.
However, they anticipate a temporary “snapback” rally, similar to previous occurrences in December 2023, July 2023, and February 2023.
This rally, if it materializes, is expected to be corrective and may test former support levels now acting as resistance in the mid-102s.
“Unless the daily chart forms a technical bottom,” BofA notes, “our bias is to sell an October election year seasonal bounce in DXY for YE24 downside.”
The note emphasizes that technical indicators and oscillators support a bearish stance on the dollar, suggesting that any gains in October should be viewed as an opportunity to sell rather than a signal of long-term strength.
The recommendation is based on BofA’s broader view of the FX market, including their technical expectations for various currencies.
In addition, BofA’s broader analysis includes a cautious stance on gold, advising against chasing it due to stretched positioning and momentum, while suggesting potential upside in silver.
For the euro, the outlook remains positive, while the pound is expected to face corrections despite a bullish trend. The USD/JPY and other currency pairs are also positioned for movements that align with BofA’s bearish dollar outlook.
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