EUR/USD shorts the trade until year-end
Bank of America Merrill Lynch FX Strategy Research argues that with EUR/USD is becoming USD trade for the rest of the year.
"We continue to expect the USD to strengthen more by end-2017, with potentially much further upside to our projections if tax reform becomes more likely.
The market is short the USD. This position is not stretched with respect to other G10 currencies, but it is stretched with respect to most EM currencies. The USD remains slightly above its long term equilibrium, but we don't expect valuation to be a constraint if monetary policies continue diverging," BofAML adds.
"We would buy any USD dips, expecting the Fed to hike in December and hike three more times next year," BofAML advises.
BofAML remains short EUR/USD from 1.1891 and expects EUR/USD to end the year at 1.15, or potentially lower if US tax reform gets more traction.
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