Synopsis:

BofA sees asymmetrically positive risks for the EUR, as extreme bearish sentiment and positioning could lead to upside surprises. However, trade uncertainty and monetary policy divergence keep them cautious on the EUR against the JPY, USD, and GBP in the near term.

Key Points:

1️⃣ EUR Bearishness May Be Overdone 📉➡️📈

• Sentiment on the Euro area remains extremely negative, and positioning remains skewed short EUR.
• This creates asymmetrical upside risks, particularly if economic data or policy surprises shift expectations.

2️⃣ Trade Uncertainty and Risk-Off Sentiment Weighing on EUR ⚠️

• Potential escalation in trade tensions, particularly targeting the Euro area, could increase trade uncertainty.
• "Risk-off" market sentiment would likely favor JPY and USD over the EUR.

3️⃣ Monetary Policy Divergence a Headwind for EUR 💲🏦

• The ECB is easing, while the Fed remains more data-dependent—keeping EUR/USD under pressure.
• The BoJ's hawkish tilt supports JPY over EUR.
• GBP remains somewhat insulated from trade risks, keeping EUR/GBP vulnerable.

4️⃣ Cautious on Risk-Sensitive FX 🌍📊

• Elevated global trade uncertainty makes BofA constructive on EUR vs. high-beta currencies like AUD and NZD but cautious against safe havens like JPY and USD.

Conclusion:

While BofA sees asymmetric upside risks for EUR, they remain cautious near-term against the JPY, USD, and GBP, given trade uncertainty and relative monetary policy stances. However, they favor EUR over risk-sensitive G10 FX like AUD and NZD due to ongoing trade concerns.