JP Morgan, BofA: EURUSD trades (updated)

eurodollar cut

14 August,, Vilnius – BofA Merrill Lynch and JP Morgan have shared their views and projections covering EURUSD trades both fundamentally and technically, with a latest technical update from JPM.

Fundamentally, BofA Merrill Lynch

After this year’s positive Eurozone and negative US fundamental data surprises, USD sceptics started speculating and rose a question: has the dollar peaked on EURUSD?

The sceptics have three key arguments:

  • Strong USD is not acceptable for the Fed;
  • Since the launch of the ECB’s QE, the Eurozone has been improving;
  • Long-term EURUSD equilibrium is estimated at approximately 1.25.

The bigger Picture

However, BofA points that the bigger picture is missing from the sceptic’s view. The bank identifies two arguments which support long-term USD, especially against EUR.

Firstly, according to BofA’s estimates, US total factor productivity (TFP) has been developing the fastest among the G10 association. In contrast, TFP growth has been contracting in the Euro area.

Secondly, the Eurozone economy has certainly got the most negative output gap in the G10 group.

Findings: USD has not peaked yet

Therefore, the data suggest that, “monetary policies will likely be looser for the ECB than for the Fed for years to come, which is consistent with a weak EURUSD, even in the medium to long term,” Merrill Lynch points out.

To top it off, based on the current TFP trends, USD equilibrium ought to be higher than estimates suggest and, as long as the Eurozone’s output gap remains such wide, Eurozone fundamental data will not suffice to lift the EUR and the ECB will likely remain supportive even if the economy improves.

BofA maintains its year-end target for EURUSD at parity.

Technically, JP Morgan

JP Morgan has updated its technical EURUSD outlook after a price rupture of 1.1120.

EURUSD has managed to enlarge its gains breaching an additional hurdle at 1.1120/29, which improves Euro prospects for having a much broader recovery.

However, in order for the bulls to truly gain additional traction to free the pathway for a much broader recovery towards 1.1699 and 1.1811 “it would take additional breaks above 1.1288 and ultimately above 1.1383 (daily trend),” JPM projects.

Alternatively, back below 1.1288, the market remains in the danger zone exposed to 1.1129 and 1.0778/44 hazards, JP Morgan finished.

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