Investors should consider selling the U.S. dollar during a potential rebound in October, driven by historical seasonal patterns and current technical indicators, Bank of America (NYSE:BAC) said in a note on Friday.
According to Bank of America, while there may be an initial rally in the dollar, the broader trend points to a bearish outlook for the currency.
Analysts are pointing to a descending triangle pattern in the Dollar Index (DXY), which indicates potential declines to around 98.98 and possibly to mid-96.
However, they expect a temporary sudden spike, similar to previous events in December 2023, July 2023, and February 2023.
This rise, if achieved, is expected to be corrective and may test previous support levels that are now acting as resistance in the mid-102 levels.
Bank of America notes that unless the daily chart forms a technical bottom, our bias is to sell the October election year seasonal bounce in the DXY for a bearish bounce in 24.
The note emphasizes that technical indicators and oscillators support a bearish stance for the dollar, suggesting that any gains in October should be viewed as a selling opportunity rather than a sign of long-term strength.
The recommendation is based on Bank of America's broader view of the FX market, including their technical forecasts for various currencies.
Additionally, Bank of America's broader analysis includes a cautious stance on gold, advising against chasing it due to the extension and increasing momentum in the market, while pointing to the possibility of silver rising.
For the euro, the outlook remains positive, while the pound is expected to face corrections despite the uptrend. USD/JPY and other currency pairs are also set for moves in line with Bank of America’s bearish outlook for the dollar.
