BofA: Staying cautious on EUR-G10 FX, favor EUR/JPY and EUR/CAD draw back

Financial institution of America maintains a cautious stance on EUR towards G10 currencies within the close to time period as a consequence of commerce uncertainty, weakened danger sentiment, and relative financial coverage dynamics, significantly following sturdy US financial knowledge. They see alternatives in EUR/JPY and EUR/CAD draw back trades.

Key Factors:

1. Drivers of EUR Warning:

   • Commerce Uncertainty:

     • Worsened danger sentiment and uncertainty round world commerce insurance policies proceed to weigh on EUR, significantly towards “high-beta” G10 currencies.
     • Whereas commerce uncertainty has retraced from its November peak, lingering issues stay a major headwind for EUR.

   • Relative Financial Coverage:

     • The ECB’s pricing is seen as bearish, particularly compared to the Federal Reserve, which continues to show a extra hawkish stance following the strong US December jobs report.

2. Positioning Dangers:

   • USD Positioning:

     • Prolonged USD lengthy positioning raises issues for a possible pullback.
     • This dynamic provides a level of warning to outright EUR/USD draw back trades, main BofA to favor cross-specific methods.

   • Euro Space Sentiment:

     • BofA notes that Euro-area bearishness is changing into stretched, creating potential limits to additional near-term EUR declines.

3. Most well-liked Trades:

   • EUR/JPY Draw back:
     • Financial coverage divergence with a doubtlessly hawkish BoJ offers room for EUR/JPY weak spot.
   • EUR/CAD Draw back:
     • The CAD’s relative resilience and potential commerce uncertainties favor EUR/CAD draw back within the close to time period.

Conclusion:

Whereas EUR sentiment stays weighed down by commerce uncertainty and ECB coverage divergence, prolonged USD positioning leads BofA to favor EUR/JPY and EUR/CAD draw back over broad-based EUR weak spot. These cross-trades supply tactical alternatives amidst stretched bearish positioning on the Eurozone.

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This text was written by Adam Button at www.ubaidahsan.com.



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