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Investing.com - Global market sentiment received a boost as the geopolitical shock in the Middle East petered out, but Bank of America Securities warned that the associated consensus bearish U.S. dollar view is becoming complacent.
The EUR/USD pair broke above $1.17, while major U.S. equity indices reached new historical highs last week, as the market quickly faded the geopolitical shock in June, said analysts at Bank of America Securities, in a note dated June 30.
The consensus expects more U.S. dollar weakness, with the front-loading of Fed cuts on weak U.S. economic data as the next potential catalyst, the bank added.
But, “tactically, we would be cautious about chasing EUR/USD higher at current levels. Up/down vol and residual skew indicators now point to a reversal of the EUR/USD uptrend,” analysts at BofA Securities said.
“Should U.S. payrolls surprise to the downside this week, the immediate market reaction could be a classic risk-off, with investors unwinding existing long EUR/USD positions.” BofA added.
The bank suggested investors hedge the potential for a weak payrolls number with a lower view for the EUR/JPY cross.
“On the back of the bearish EUR quant signal and our economists’ lower payrolls forecast vs consensus, we prefer to hold a bearish EUR/JPY view for this week. The uptrend for this cross is not stretched, but the bullish momentum is losing steam ahead of ¥170,” BofA said.
Should a macro shock materialize, the Japanese yen would likely see the most upside potential in G10 FX this week, the U.S. bank said, with the risk to the view coming from a stronger June U.S. payrolls data than consensus.
At 08:45 ET (12:45 GMT), EUR/USD traded at $1.1806, while EUR/JPY stood at ¥168.91.