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Investing.com - The euro continued its upward trend last week, with investors increasingly positioning for higher EUR/USD spot prices through leveraged formats, according to Bank of America’s latest analysis.
BofA reports that while EUR/USD spot price appreciated last week, the one-month option skew moved toward euro puts, combined with falling front-end implied volatility. These dynamics suggest foreign exchange investors have been selling deep out-of-the-money calls to gain leveraged exposure to euro strength.
The bank’s August 6 "FX Vol Insight" report indicates that although the EUR/USD uptrend resumed following July’s U.S. payrolls data, historical patterns suggest limited further gains. Since 1995, when EUR/USD rallied 14% over six months as it did this year, the median three-month additional gain was only 0.8%, with a maximum return of 2.6%.
BofA analysts note that euro strength extends beyond the dollar, with broad-based uptrend continuation signals for most euro crosses except EUR/JPY. EUR/CAD recently crossed above 1.61, trading at its highest weekly close level since 2009, while EUR/GBP maintains positions above both its 50-day simple moving average trendline and the 0.86 support level.
The bank identifies potential risks to the bullish euro outlook, including downside surprises in Eurozone Purchasing Managers’ Index data or higher-than-expected inflation readings from the United Kingdom (TADAWUL:4280) and Canada.
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