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
EUR/GBP gathers strength to above 0.8650, all eyes on ECB rate decisionThe EUR/GBP cross trades in positive territory near 0.8670 during the early European session on Thursday.
Author  FXStreet
28 mins ago
The EUR/GBP cross trades in positive territory near 0.8670 during the early European session on Thursday.
placeholder
EUR/USD extends the rally above 1.1750 ahead of ECB rate decisionThe EUR/USD pair extends its upside to around 1.1775 during the early European session on Thursday.
Author  FXStreet
1 hour ago
The EUR/USD pair extends its upside to around 1.1775 during the early European session on Thursday.
placeholder
Australian Dollar extends winning streak following improved PMI dataThe Australian Dollar (AUD) advances against the US Dollar (USD) on Thursday, extending its gains for the fifth consecutive day. The AUD/USD pair is reaching fresh eight-month highs above 0.6600 following the release of Australia's preliminary Judo Bank Purchasing Managers Index (PMI) data.
Author  FXStreet
4 hours ago
The Australian Dollar (AUD) advances against the US Dollar (USD) on Thursday, extending its gains for the fifth consecutive day. The AUD/USD pair is reaching fresh eight-month highs above 0.6600 following the release of Australia's preliminary Judo Bank Purchasing Managers Index (PMI) data.
placeholder
US Dollar Index extends downside to near 97.00 as traders assess new trade dealThe US Dollar Index (DXY) extends the decline to around 97.15, the lowest since July 7, during the Asian trading hours on Thursday.
Author  FXStreet
4 hours ago
The US Dollar Index (DXY) extends the decline to around 97.15, the lowest since July 7, during the Asian trading hours on Thursday.
placeholder
AUD/USD extends four-day winning streak, focus shifts to US-China trade talksThe AUD/USD pair extends its winning streak for the fourth trading day on Wednesday. The Aussie pair jumps to near 0.6580 as the Australian Dollar (AUD) outperforms across the board amid a cheerful market mood.
Author  FXStreet
20 hours ago
The AUD/USD pair extends its winning streak for the fourth trading day on Wednesday. The Aussie pair jumps to near 0.6580 as the Australian Dollar (AUD) outperforms across the board amid a cheerful market mood.