Synopsis:

Bank of America notes that European investors, who were previously driving the USD rally earlier in 2024, have now shifted to short USD positions. This shift coincides with a recent EUR/USD breakout above 1.10.

Key Points:

• Shift in European Investor Behavior:

  • Earlier in 2024, the USD rally was significantly driven by demand from investors outside of US trading hours, particularly Europe-based investors.
  • As of August, foreign demand for the USD has decreased, with Europe-based investors unwinding their long USD positions and recently flipping to short USD.

• Impact on EUR/USD:

  • Both US and Europe-based investors are now cumulatively net long EUR/USD for the year. This shift has contributed to the recent breakout of EUR/USD above the 1.10 level.

• Market Dynamics:

  • The change in positioning among European investors highlights a significant shift in sentiment towards the USD, which could continue to impact currency markets in the coming months.

Conclusion:

BofA observes that the shift from long to short USD positions by European investors has played a crucial role in the recent EUR/USD breakout. This change in market dynamics suggests that investor sentiment has turned against the USD, potentially influencing further movements in the currency pair.