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29 May 2015
EUR/USD bear trend baseline scenario - BofA
FXStreet (Bali) - Kamal Sharma, FX Strategist at Bank of America Merrill Lynch, notes that should the US data pick up more consistently, the continuation of the trend of EUR/USD weakness remains the Bank's baseline scenario.
Key Quotes
The equity signal for currencies becomes contrarian as the participation in fully hedged equity strategies increases. As investors have become more comfortable holding hedged equity positions during currency trends, the equity inflows would provide less support for the currency. This is bearish EUR all else being equal. In the case of significant central bank easing, the contrarian signal becomes more acute as the hedging share goes up.
Our European economists continue to believe that the ECB QE program will run to its entirety to September 2016 and could be extended beyond that date. At the same time, we maintain our view that the US will begin its tightening cycle in September."
"Given the recent “tantrum” in bond markets which has filtered into FX markets, the long USD/US curve flattening position has been significantly pared back by the speculative community. Should the US data pick up more consistently then the continuation of the trend of EUR/USD weakness remains our baseline scenario.
Key Quotes
The equity signal for currencies becomes contrarian as the participation in fully hedged equity strategies increases. As investors have become more comfortable holding hedged equity positions during currency trends, the equity inflows would provide less support for the currency. This is bearish EUR all else being equal. In the case of significant central bank easing, the contrarian signal becomes more acute as the hedging share goes up.
Our European economists continue to believe that the ECB QE program will run to its entirety to September 2016 and could be extended beyond that date. At the same time, we maintain our view that the US will begin its tightening cycle in September."
"Given the recent “tantrum” in bond markets which has filtered into FX markets, the long USD/US curve flattening position has been significantly pared back by the speculative community. Should the US data pick up more consistently then the continuation of the trend of EUR/USD weakness remains our baseline scenario.