Bearish bets on EUR/USD attractive again after latest fightback: BofA

Investing.com
Updated
Mitrade
coverImg
Source: Shutterstock

Investing.com -- The euro has been fighting back against the dollar, following its a post-U.S. election ride lower, but Bank of America (NYSE:BAC) says now is the time to to renew bearish bets on the single currency again.

"ForEUR/USD, we believe that there is limited upside potential to 1.06 but more room to the downside, as the pair could fall below 1.05 on the back of new tariff headlines," strategists from Bank of America said in a recent note

The relative strength index and spot/50-day simple moving average ratios suggest that bearish EUR/USD price action is no longer stretched, they added.

The bearish outlook on the euro comes even as the Federal Reserve is expected to cut rates next week. However, this cut is largely priced into EUR/USD, the strategists said, expecting the updated Fed outlook to reflect a shallow rate cut cycle.

"[W]hile the Fed will cut next week, the Fed's consensus (median) will be to tilt the outlook in a more hawkish direction than in September or November," Bank of America analysts noted in a recent report.

An upside surprise in U.S. CPI, a measure of inflation due Wednesday, could weaken the dollar, but the impact will likely be temporary.

While a negative surprise in U.S. CPI data this week could initially weaken the dollar, the EUR/USD has shown "the lowest correlation to U.S. CPI surprises in this cycle," the strategists said.

As well as an expected hawkish tilt from the Fed next week on rate outlook, the EUR/USD is likely to come added pressure from the potential tariff headlines as President-elect Donald Trump officially takes the presidential reins next month.

"For EURUSD, we believe that there is limited upside potential to 1.06 but more room to the downside, as the pair could fall below 1.05 on the back of new tariff headlines," strategists from Bank of America said in a recent note

The relative strength index and spot/50-day simple moving average ratios suggest that bearish EUR/USD price action is no longer stretched, they added,

The bearish note on the euro comes even as the the Federal Reserve is expected to cut rates next week. But the cut is largestly priced into EUR/USD, the strategists said, expecting the updated Fed outlook to reflect a shallow rate cut cycle.

"[W]hile the Fed will cut next week, the Fed's consensus (median) will be to tilt the outlook in a more hawkish direction than in September or November," Bank of America analysts noted in a recent report.

An upside surprise in U.S. CPI, a measure of inflation, due Wednesday could provide weaken the dollar, but the impact will likely be temporary.  

"While a negative surprise in U.S. CPI data this week could initially weaken the dollar, the analysts note that EUR/USD has shown the lowest correlation to U.S. CPI surprises in this cycle," the strategists said. 

As well as a hawkish tilt from the Fed next week on rate outlook, the EUR/USD is likely to come added pressure from the potential tariff headlines as President-elect Donald Trump officially takes the presidential reins next month.

* The content presented above, whether from a third party or not, is considered as general advice only.  This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.

goTop
quote
Do you find this article useful?
Related Articles
placeholder
NZD/USD moves little around 0.6050 as traders seek clarity on Trump's plans for tariffsNZD/USD remains subdued for the third successive session, trading around 0.6070 during the Asian hours on Friday.
Author  FXStreet
16 mins ago
NZD/USD remains subdued for the third successive session, trading around 0.6070 during the Asian hours on Friday.
placeholder
EUR/USD wobbles around 1.1760 amid holiday in US on account of Independence DayThe EUR/USD pair trades in a tight range around 1.1760 during the Asian session on Friday.
Author  FXStreet
17 mins ago
The EUR/USD pair trades in a tight range around 1.1760 during the Asian session on Friday.
placeholder
Japanese Yen sticks to strong Household Spending data-inspired gainsThe Japanese Yen (JPY) scales higher during the Asian session on Friday following the release of strong domestic Household Spending data.
Author  FXStreet
18 mins ago
The Japanese Yen (JPY) scales higher during the Asian session on Friday following the release of strong domestic Household Spending data.
placeholder
USD/CAD struggles below 1.3600, over two-week low; bears not ready to give up yetThe USD/CAD pair oscillated in a narrow band during the Asian session on Friday and remains close to a nearly three-week low touched the previous day.
Author  FXStreet
1 hour ago
The USD/CAD pair oscillated in a narrow band during the Asian session on Friday and remains close to a nearly three-week low touched the previous day.
placeholder
Australian Dollar falls as US jobs data dampen expectations of a Fed rate cutThe Australian Dollar (AUD) extends its losses against the US Dollar (USD) on Friday.
Author  FXStreet
1 hour ago
The Australian Dollar (AUD) extends its losses against the US Dollar (USD) on Friday.