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Bank of America (BofA) analysts provided insights into the current currency market trends, noting a shift from Canadian dollar (CAD) weakness to a continued downtrend in the EUR/JPY pair.
The recent delay in tariffs has impacted the U.S. dollar (USD) uptrend, with USD/CAD hitting a trigger level that neutralizes its previous upward trajectory. This has led to a significant rally for the CAD, driven in part by the squaring of short CAD positions among trend followers.
The analysts anticipate that the CAD may experience a limited relief rally in the near term due to ongoing trade uncertainty. They predict that half of the USD’s uptrends against G10 currencies could turn sideways in the next two weeks. Despite these changes, BofA does not foresee the formation of USD downtrends.
The Japanese yen (JPY) has strengthened against various currencies as foreign exchange volatility has increased amid a risk-off dynamic in the markets. BofA expects the downtrend in EUR/JPY to persist, with trend followers likely to push the pair even lower.
Should new tariffs be introduced in the Eurozone, the analysts believe there is a possibility that EUR/JPY could retest its December 2024 low of 156.18, with a potential target for trend followers to unwind positions being slightly lower at 155.45. However, they also note that the bullish outlook for JPY could be at risk if no new tariffs are announced.
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