Investing.com – The euro is struggling against the dollar after falling after the US election, but Bank of America says now is the time to renew its bearish stance on the single currency.
“We believe the upside potential to 1.06 is limited, but there is more room to fall as the pair could fall below 1.05 on new tariff headlines,” Bank of America strategists said in a recent note
They added that the relative strength index and spot/50-day elementary moving averages suggest that the EUR/USD bearish price action is no longer tense.
The bearish outlook for the euro comes even as the Federal Reserve is expected to cut interest rates next week. But the cut is largely priced in EUR/USD terms, strategists say, expecting the Fed’s updated outlook to reflect a shallow rate cut cycle.
“[W]Although the Fed will cut 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 upside surprise in the form of U.S. CPI, a measure of inflation due on Wednesday, could weaken the dollar, but the impact is likely to be fleeting.
While a negative U.S. CPI surprise this week may initially weaken the dollar, EUR/USD has shown “the lowest correlation with U.S. CPI surprises this cycle,” strategists said.
In addition to the Fed’s expected hawkish stance on the interest rate outlook next week, the EUR/USD rate will likely face additional pressure from potential tariff headlines when President-elect Donald Trump officially takes the presidential reins next month.
“We believe EURUSD has limited upside potential to 1.06, but there is more room to fall as the pair could fall below 1.05 on new tariff headlines,” Bank of America strategists said in a recent note
The relative strength index and spot/50-day elementary moving averages suggest that the EUR/USD bearish price action is no longer tense, they added:
The bearish note on the euro comes even as the Federal Reserve is expected to cut interest rates next week. But the cut is mostly priced in EUR/USD terms, strategists say, expecting the Fed’s updated outlook to reflect a shallow rate cut cycle.
“[W]Although the Fed will cut 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.
A positive surprise in the form of the US CPI inflation rate on Wednesday may cause the dollar to weaken, but the impact will likely be fleeting.
“While this week’s negative U.S. CPI surprise may initially weaken the dollar, analysts note that EUR/USD has shown the lowest correlation with U.S. CPI surprises this cycle,” the strategists said.
In addition to the Fed’s hawkish stance next week on the interest rate outlook, the EUR/USD rate will likely face additional pressure from potential tariff headlines when President-elect Donald Trump officially takes the presidential reins next month.
