Institutional Insights:BofA FX Quant Insight USD bears revisit September NFP
BofA FX Quant Insight: USD bears revisit September NFP
Key Takeaways
- Bearish USD Sentiment:
- Increased bearish pressure on the USD as the US government shutdown ended, with the DXY index remaining below the 200-day Simple Moving Average (SMA).
- Option Skew Dynamics:
- Shift towards USD puts as the USD traded weaker, particularly in conjunction with declining US equities ahead of the September Non-Farm Payroll (NFP) report.
- GBP Momentum:
- Quantitative models indicate sustained bearish momentum for GBP, with no significant contrarian signals suggesting a potential rally.
- FX Signal of the Week:
- Bullish EUR/GBP at a level of 0.8800.
## Technical Insights
### Option Flow
- Bearish GBP:
- Last week saw a significant demand for GBP/USD puts, reflected in a 2 z-score move.
### Technical Matrix
- Bullish EUR/GBP:
- The EUR/GBP spot price indicates a bullish uptrend continuation signal.
### CARS Model
- Equity Regime:
- The model suggests bullish positions in CHF and NOK against bearish outlooks for GBP and AUD based on equity factors.
### Time Zone Impact
- Asia Hour GBP Supply:
- The rally in EUR/GBP since October has been predominantly driven during Asian trading hours.
### Emerging Market FX
- Bearish USD:
- Option skews have shifted towards USD puts relative to Emerging Market (EM) currencies.
## Market Context
- The end of the US government shutdown and the DXY's failure to break above the 200-day SMA have contributed to the increased demand for USD puts.
- Recent trends in US equities show a downward drift since the October FOMC meeting, leading to a weaker USD.
- The FX market remains influenced by equity performance, with muted spot trends observed. The EUR/USD trend is flat, and the USD/G10 trend breadth remains neutral.
- A soft US labor report this week may be necessary for further movement towards a weaker USD.
## GBP Outlook
- Current quant signals reinforce a bearish stance on GBP, with significant put demand observed.
- Despite potential for a relief rally post-UK budget announcement, bearish momentum remains intact, and risks are associated with maintaining a bearish GBP outlook this week.
### Conclusion
The FX market is currently characterized by bearish sentiment towards the USD and GBP, with bullish signals for EUR/GBP. Market participants are advised to watch for labor report outcomes to validate the prevailing trends.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!