Investing.com — The euro has fought back against the dollar after falling after the U.S. election, but Bank of America says now is the time to renew bearish bets on the common currency.
“We believe there is limited upside potential to 1.06, but there is more room for downside moves as the pair could fall below 1.05 on fresh rate news,” said strategists at the Bank of America in a recent note.
The relative strength index and spot/50-day simple moving average ratios suggest the bearish EUR/USD price action is no longer being stretched, she added.
The bearish outlook for the euro comes at the same time the Federal Reserve is expected to cut interest rates next week. However, this cut is largely priced into EUR/USD, strategists said, with expectations that the updated Fed outlook will reflect a shallow rate-cutting cycle.
“[W]Although the Fed will cut spending next week, the Fed 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 upward surprise in the US CPI, a measure of inflation expected on Wednesday, could weaken the dollar, but the impact is likely to be temporary.
While a negative surprise in US CPI data this week could initially weaken the dollar, the EUR/USD shows “the lowest correlation to US CPI surprises this cycle,” the strategists said.
In addition to an expected hawkish stance from the Fed on the interest rate outlook next week, the EUR/USD is likely to face additional pressure from potential rate news as President-elect Donald Trump officially takes the presidential reins next month.
“For EURUSD, we believe there is limited upside potential to 1.06, but more room for downside as the pair could fall below 1.05 on fresh rate news,” said strategists at the Bank of America in a recent note.
The relative strength index and spot/50-day simple moving average ratios suggest the bearish EUR/USD price action is no longer being stretched, she added.
The bearish note on the euro comes at the same time the Federal Reserve is expected to cut interest rates next week. But the cut is largely priced in EUR/USD, the strategists said, on expectations that the updated Fed outlook will reflect a shallow cycle of rate cuts.
“[W]Although the Fed will cut spending next week, the Fed 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 upward surprise in the US CPI, a measure of inflation, could weaken the dollar on Wednesday, but the impact is likely to be temporary.
“While a negative surprise in US CPI data this week could initially weaken the dollar, analysts note that EUR/USD has shown the lowest correlation to US CPI surprises this cycle,” the strategists said.
In addition to an aggressive stance from the Fed on the interest rate outlook next week, the EUR/USD is likely to see additional pressure from potential rate news as President-elect Donald Trump officially takes the presidential reins next month.
