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Bank of America Merrill Lynch analysts suggests that their constructive view on the EUR this year may need more time to play out as their estimates suggest that EUR/USD pair is undervalued by about 7 percent, primarily because of the USD overvaluation.

Key Quotes

“EUR is actually overvalued against GBP and JPY.”

“Mixed US data & a dovish Fed should have helped to bring EUR/USD back to equilibrium, between 1.20 &1.25, which is also our forecast range. But, Eurozone data remains very weak, ECB tone has turned dovish, and EUR remains very vulnerable to Brexit risks and trade tensions.”

“Still, our baseline scenario for global eco is consistent with a stronger EUR/USD in months ahead. It is not hard to argue that EUR/USD will appreciate following US-China & US-EU trade deals, a Brexit deal, & improvement in China data following recent policy stimulus EZ data has been surprisingly weak and could rebound in this scenario.”

“ECB could start talking again about rate normalization. A number of things have to go right for EUR/USD to strengthen, but we remain optimistic. It could just take more time than we’ve been expecting.”