The Research Team at Bank of America Merrill Lynch (BAML) offers EUR/USD outlook amid bullish technical setup and positioning model.
"Cumulative EUR/USD price action had reset to flat, offsetting depreciation of the last 3 months. The broader USD trend has faltered and rolled over, with the MAA breadth reverting to just +2 after briefly capping at +9 in April, consistent with USD selling we saw in our proprietary flows.
The short-dated SDR flows in EUR/USD leaned more toward calls last week on the back of a robust pickup in volumes. Our positioning model is showing a rare fledgling EUR uptrend forming with rising MAA, supported by bullish Up/Down vol and Residual Skew.
A wedge bottom pattern is confirmed and targets 1.1461, 1.1545, 1.1660 and possibly 1.1830. We favor being long or buying a dip into the mid-1.12s and, while 1.11 holds, looking for a rally to aforementioned targets. A base near 1.11 and breakouts above the 50d SMA, trend line, prior peaks, 100d SMA and April high suggest an uptrend is underway."
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