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EUR/USD is trading around 1.12 and  still looking for a direction, despite  hovering in lower ground.

What is the next move for EUR/USD? And when? The team at Bank of America Merrill Lynch answers:

Here is their view, courtesy of eFXnews:

Bank of America Merrill Lynch macro strategy team* has been a consistent bearish EUR, but has also been warning as of late about upside risks as 1Q comes to an end.

‘The long-term outlook for the Euro remains negative, as ECB and Fed monetary policies diverge. However, data has recently turned more supportive for the Euro and could improve further as we see the lagged impact from the weak Euro and the low oil prices,” BofA clarifies.

The market remains short EUR, but recent flows suggest a lack of a strong conviction for further EUR weakness in the short term. At the same time, ECB QE has attracted strong equity flows into the Eurozone, which should support the Euro to the extent that this flow is not FX hedged,” BofA argues.

“We believe that open-ended QE reflects a change in the ECB policy reaction function, which will eventually weaken the Euro further, but its impact will be seen as the policy is being implemented after 1Q.  We expect the first Fed rate hike only in September,” BofA adds.

EURUSD chart forecast vs forwards weekly EM reverse accumulation and percentage of change

All in all: Further Weakness, but after 1Q

We expect EUR/USD to strengthen to 1.16 by the end of 1Q, eventually weakening to 1.10 by the end of 2015 and to 1.05 by the end of 2016,” BofA projects.

As we remain bearish in the longer term, we will sell short-term EUR/USD rallies,” BofA advises.

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