Synopsis:

BofA highlights that the USD is currently overbought following a significant rally, advising a tactical fade of the dollar's strength for the remainder of the month.

Key Points:

• Recent USD Performance:
  The USD has rallied in 12 of the 15 trading days this month, with the DXY return tracking near the top end of the past decade's range.

• Overbought Indicators:
  The ratio of the spot price to the 50-day simple moving average (SMA) indicates that the USD has become overbought, which historically precedes periods of USD weakness.

• Declining Demand for Calls:
  Option flow analysis reveals a waning demand for short-dated call options to chase the USD rally, suggesting reduced bullish sentiment.

• Economic Data Surprise Index:
  The spread between US and global economic data surprise indices has flattened in October, indicating a lack of momentum in USD strength.

Conclusion:

BofA recommends fading the recent USD rally, as current conditions reflect overbought levels and decreasing demand for bullish options. They suggest that the dollar's strength may not sustain through the rest of the month.