Bank of America Merrill Lynch Research discusses EUR/USD outlook and notes that the pressure on the dollar has intensified in the opening weeks of the year despite a supportive macro backdrop.
"We continue to think the market is ignoring USD upside risks in the first half of the year, while simultaneously over-emphasizing the positive and well-priced ECB "normalization" story. US data had had a strong run, fiscal stimulus is expected to provide further tailwinds to the already-solid growth outlook this year and the Fed continues to tighten," BofAML argues.
USD: rebound approaching
"We think Fed repricing effects couldeasily push EURUSD below 1.15 absent the flow effects of USD repatriation, particularly if the repricing is concentrated in 2019. Finally, we would point out that CFTC speculative positioning in EUR is nearing all-time highs.In short, EURUSD has had quite a run, but we think that it is due for a sizable correction," BofAML adds.