Bank of America Global Research maintains a bullish bias on the USD and JPY, targeting EUR/USD at 1.14 and USD/JPY at 103 by year-end.
"Since the summer, risk assets have adjusted lower. However, this is still a very small correction compared with the strong market rally in the months since the March bottom. Looking at FX flows and positioning also suggests the market remains long risk. In this context, we see the recent market correction as only the beginning of the risk-off move we have been expecting for the rest of the year," BofA notes.
"We expect the global economy to weaken in 4Q. COVID-19 infections are increasing in most countries. In the meantime, it is becoming increasingly unlikely that a vaccine will be approved before the end of the year. Policy constraints, both for fiscal and monetary policies, are also becoming binding. The US elections remain a major known unknown. We see further USD and JPY strength in 4Q. We have an optimistic baseline for 2021, but this is still subject to high uncertainty," BofA adds.