Investing.com – According to Bank of America Securities, the euro is currently benefiting from bullish momentum, and it looks like it will continue to do so.
In August, the sell-off in the US dollar was undoubtedly the focus of the currency market, BoA analysts said in an August 26 note, while the euro’s broad rally may have been underappreciated by investors.
Year to date, however, the euro’s nominal effective exchange rate (NEER) has appreciated by 1.1% on a trade-weighted basis, which represents the 80th percentile over the past two decades, the bank added.
The euro’s strength is not just about the bilateral spot breakout, the bank said, as the EUR could have the bullish momentum among all non-USD G10 currencies in the near term.
“Over the past month, the 1m skew (risk reversal to ATM volume) has increased by 12% for EUR/USD calls, by far the highest of all USD/G10 pairs,” BoA said.
With this in mind, and given the momentum for the euro, the bank recommends a bullish view on the cross this week.
“EUR/SEK stands out to us as an attractive candidate as the pair has returned 3% in the past month and has been in the third percentile for the past decade,” the bank said. “The EUR/SEK spot move was contrary to the bullish EUR options flow and is dislocated from the 2-year EU-SK rate differential.”
The SEK’s rally is long-term, BoA added, and in our view was largely driven by the disappearance of existing short positions in the SEK and speculators viewing the SEK as a ‘high beta’ indicator for the EUR amid this month’s risk recovery.
“With the EUR/SEK spot now down to trendline support and 200d SMA, the level has become sufficiently attractive to tactically fade the EUR/SEK price movement thus far.”
At 06:15 ET (10:15 GMT), EUR/SEK was trading 0.1% lower at 11.3905.
