Synopsis:

Bank of America (BofA) outlines their trading strategy for USD/JPY, EUR/USD, and GBP/USD, emphasizing expectations for a USD/JPY rally, continued positive outlook for EUR/USD, and a constructive stance on GBP, favoring buying on dips.

Key Points:

1. USD/JPY:

   • Rally Expected: BofA anticipates USD/JPY to rally again, though not reaching its recent peaks. They forecast a year-end target of 155.
   • BoJ Stance: The Bank of Japan (BoJ) has shown reluctance to hike rates amid recent market volatility, which BofA believes will limit the yen's strength.
   • Fed Rate Cuts: BofA expects the Federal Reserve to cut rates twice this year, which is less than the nearly 4.5 cuts currently priced by the market.

2. EUR/USD:

   • Positive Outlook: BofA maintains a positive view on EUR/USD and remains long on the pair.
   • Economic Conditions: While they do not foresee recession risks in the US, the economy is slowing. In contrast, core inflation in the Eurozone remains elevated at 2.9%, with services inflation stuck at 4%, keeping the European Central Bank (ECB) in a tightening mode.

3. GBP/USD:

   • Constructive Stance: BofA remains constructive on GBP and suggests buying on dips.
   • Fundamental Improvement: The bank notes an improving fundamental picture for the UK, with more mainstream policies and better relations with the EU since the new government took over.
   • BoE Easing: They anticipate a shallow easing cycle from the Bank of England (BoE), driven by the highest inflation rates among G10 currencies.

Conclusion:

BofA's trading strategy reflects expectations for a USD/JPY rally driven by a cautious BoJ and limited Fed rate cuts. They remain positive on EUR/USD due to persistent inflation in the Eurozone and constructive on GBP/USD due to improving UK fundamentals and expectations of a shallow BoE easing cycle.