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May 14 - 12:55 PM

BofA: EURUSD Poised for Bullish Breakout Around US CPI Data

By eFXdata  —  May 14 - 10:45 AM

Synopsis:

Bank of America anticipates a potential bullish breakout for EURUSD in the context of the upcoming US CPI release for April. Market sentiment is shifting towards a bearish outlook on the USD, influenced by recent changes in FX options positioning and technical indicators.

Key Points:

  • Bearish USD Sentiment: There has been a noticeable shift in market sentiment against the USD, as evidenced by option skews moving towards USD puts and the unwinding of long USD positions.
  • EURUSD Technical Setup: EURUSD is testing significant technical resistance levels, including the 200-day and 50-day moving averages, suggesting a potential breakout from the year-to-date downtrend.
  • Inflation Expectations: Expectations for a weaker US core CPI print are setting the stage for EURUSD strength. Historical data indicates that such a pattern of consecutive upside surprises in core CPI is rare, enhancing the potential for a miss.
  • Market Positioning: Current FX options positioning and technical analysis signal bullish prospects for EURUSD, especially if the CPI data underperforms market expectations.

Conclusion:

Bank of America holds a bullish view on EURUSD heading into the release of the US CPI data, citing easing concerns over persistent inflation if the data meets or falls below expectations. However, a higher-than-expected inflation figure could pose risks to this outlook, potentially reinforcing USD strength.

Source:
BofA Global Research

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