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EUR/USD escaped the abyss but is not going anywhere fast. What’s next?

Here is their view, courtesy of eFXdata:

Bank of America Merrill Lynch Research discusses what’s next for EUR/USD over the coming months after its 1.15 break.  BofAML is now structurally bullish EUR/USD and will look for opportunities to buy dips over this coming Fall.

In the short-term, EURUSD risks are still to the downside, but we believe we have already seen most of the move.  Our end- Q2 projection is 1.12, and we are not far from this level. Historical correlations of data and rate differentials would justify even going all the way down to 1.10. Italy remains a concern, with the budget discussion just ahead this fall.

However, we will be looking for an opportunity this fall to go long the Euro ahead of next year, when we forecast EURUSD at 1.20.  Our equilibrium EURUSD estimate is 1.22. We expect the ECB to start hiking next year””before or after the summer does not really matter. Draghi will be replaced, most likely by someone less dovish. The impact of the US fiscal stimulus will gradually weaken. The Euro has the tendency to appreciate if there is no new news, given the large Eurozone current account deficit and ongoing reserve diversification away from the USD.

Stay tuned for now and get ready for the right time to buy the EURUSD dip,” BofAML advises.

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