The Euro Surges as Bank of America Predicts Continued Bullish Momentum
Bank of America Securities analysts have highlighted the current bullish momentum benefiting the euro, with expectations for this trend to persist. In a recent note, they emphasized that while the U.S. dollar selloff dominated the foreign exchange market in August, the broader euro rally may have been overlooked by investors.
Throughout the month, the euro’s nominal effective exchange rate (NEER) has seen a 1.1% increase on a trade-weighted basis, placing it at the 80th percentile compared to the past two decades. Bank of America also pointed out that the euro’s strength extends beyond bilateral spot movements, with EUR showing the most near-term bullish momentum among non-USD G10 currencies.
In particular, there has been a significant rise in 1-month skew for EUR/USD calls, standing out as the highest across all USD/G10 pairs. With this positive outlook for the euro, Bank of America recommends a bullish stance on the cross for the week ahead.
One notable currency pair highlighted by the bank is EUR/SEK, which has experienced a -3% return over the past month, ranking in the 3rd percentile over the last decade. Despite the bullish EUR options flow, the EUR/SEK spot movement has diverged from expectations, presenting an opportunity due to the dislocation against the 2-year EU-SK rate differential.
Bank of America noted that the SEK rally appears overstretched, largely influenced by the unwinding of existing short SEK positions and speculators viewing SEK as a high-beta proxy for the euro amid recent risk recovery. As the EUR/SEK spot approaches trendline support and the 200-day SMA, the level becomes attractive for a tactical fade of the month-to-date move.
As of 06:15 ET (10:15 GMT), EUR/SEK was trading 0.1% lower at 11.3905.
Analysis:
Bank of America’s bullish outlook on the euro, particularly against the Swedish Krona, suggests potential opportunities for investors looking to capitalize on the current market trends. The euro’s strength and positive momentum against other major currencies, as highlighted by the bank’s analysis, could indicate favorable conditions for those considering currency trades or investments. By paying attention to these insights and monitoring the suggested currency pairs, individuals may be able to make informed decisions to enhance their financial positions.