A group of Bank of America analysts in a Tuesday note to clients, reiterated their bullish calls on the dollar-yen pair, dollar-euro pair and U.S. Treasurys.
But in their outlook for the euro-dollar pair, they went a step further and called a top to the shared currency’s recent gains. From here on out, they said, investors should sell the euro on bounces. On Tuesday, the euro EURUSD, -0.3498% recorded its worst one-day performance against the dollar in two months, trading around $1.1150 in the afternoon, compared with $1.1332 yesterday.
Treasurys, like the dollar, have so far defied near-unanimous predictions that yields would rise in 2015, as negative rates in Europe forced foreign investors to park their money in Treasurys. Treasury yields move inversely to prices.
The dollar-yen, meanwhile, hasn’t moved outside a range of between ¥118.4 and ¥122 for about four months. The dollar USDJPY, +0.16% was trading around ¥120.7 Tuesday, up from 1¥19.97 Monday.
According to the analysts, the euro broke through a key support level earlier Tuesday when it fell below $1.1131, its low from May 11. They now expect the shared currency to meet with resistance around $1.0535, before falling to $1.0462, its March 16 low. Then, it is on to their long-term target of $1.0283.
Here’s what B.of A. had to say about the dollar-yen pair:
- Evidence continues to say that the contracting range of the past 4+ months is drawing to a conclusion and the long-term uptrend is set to resume for 124.59, ahead of 128.45. Below 118.33 invalidates this view and points to continued range-trading. Those awaiting additional price confirmation should watch for a break 120.86 (Apr-13 high). We recommend adding to long positions on a break 120.86.
And on Treasurys:
- Despite this morning’s rise in 10yr (and 30yr) Treasury yields, we remain bullish. Looking specifically at 10s, not only did the yield fail to break the 18m trendline support (now 2.294%) but the market is forming a potential month-to-date Head and Shoulders Top. Below the neckline at 2.144% completes the pattern, targeting year-to-date channel base at 1.919% and potentially below.
So, for every investor who has taken a beating on the dollar and Treasury trade this year, Bank of America’s message is this: Keep the faith a little bit longer. Change is just around the bend.
Source: MarketWatch
