Bank of America Securities recently analyzed the EUR/USD exchange rate and predicts a significant bullish breakout. Market dynamics increasingly favor a bearish view on the U.S. dollar. This shift is mainly due to the growing preference for USD puts over calls.
In recent weeks, Europe-based investors have actively unwound their long USD positions. This change reflects their growing doubts about the U.S. dollar’s strength. During the latest trading session, the EUR/USD pair traded up by 0.2% at $1.0812. This increase occurred despite U.S. producer prices rising more than expected by 0.5% in April, which indicates lingering inflation pressures.
The market is keenly awaiting the upcoming U.S. CPI report, expecting potentially weak figures. Analysts forecast a 0.4% monthly increase and a 3.4% annual rise in the headline CPI. Similarly, they anticipate the core CPI, excluding food and energy, to climb by 0.3% monthly and 3.6% annually.
Bank of America points out that if core CPI falls short, EUR/USD could rally significantly. Such a movement would surpass key resistance levels at the 50-week and 100-day SMAs, which are around 1.0823-1.0828. Moreover, even an inflation report in line with expectations could alleviate some concerns about stubborn inflation, supporting a bullish outlook for EUR/USD.
Therefore, investors should closely monitor these economic indicators in the coming sessions. They could greatly influence EUR/USD’s direction, especially if the U.S. core CPI data disappoints for the first time in 2024.
