Bank of America Merrill Lynch FX Strategy Research notes that next week will be important in the FX market as investors warm towards the EUR, while the mood towards USD remains relatively ambivalent.
"Focus now turns squarely to the upcoming US data, particularly core PCE, ISM and next Friday's payrolls report. With a June hike 80% priced, any Fed commentary will be carefully parsed for clues that the Fed is comfortable with this pricing. With the blackout period looming, the Fed only has next week to push back against market expectations if they so choose," BofAML notes.
" With the next ECB meeting fast approaching, and expectations that we will see a change in language signaling a hawkish shift already at the June meeting, next week's Eurozone inflation data will draw increased attention. While positioning does not look stretched on a longer-term perspective, it is worth noting how sharp the recent position adjustment has been in EUR, suggesting some risks of tactical pullbacks," BofAML adds.
Strategy-wise, BofAML remains bearish on JPY vs both EUR and USD, though notes that the near-term outlook for USD/JPY is more uncertain.
"Both fundamentals and positioning also argue for long NZD/JPY. We are cautious on GBP, and feel the market consensus has turned too positive on Brexit. We are tactically short GBP," BofAML advises.
Source: Bank of America Merrill Lynch Rates and Currencies ResearchOriginal Article
