EUR/USD could test parity, GBP/USD upside limited – BAML

FXStreet (Edinburgh) - According to analysts at BAML, the outlook for the greenback remains positive, and could send both EUR/USD and GBP/USD lower in the upcoming months.

Key Quotes

“As a strategy group we remain USD bulls”.

“We continue to expect that EUR/USD will depreciate towards parity into year-end”.

“But a natural consequence of this is that GBP/USD will be an unwitting casualty of a broader USD rebound based on the historic correlation”.

“However, the move higher in GBP/USD has been impressive, hitting its highest levels of the year in mid-May. This rally reflects the overhang of GBP shorts from the CTA speculative community that we highlighted in a recent note against the backdrop of ongoing weakness in US data”.

“As a result of the position unwinding, GBP/USD has overshot levels implied by yield differentials”.

“We see limited upside for GBP/USD but look for GBP outperformance on the crosses where positioning has been less of a constraint”.

“We continue to look for a lower EUR/GBP as the divergence between monetary policies weighs on EUR and as the ECB reiterates its commitment for QE to run its course”.