Trump says Iran war "close to over" amid hopes for more negotiations
Investing.com -- Bank of America’s quantitative signals indicate the market is positioned for de-escalation trades, with the U.S. dollar lower and the euro, Australian dollar, and emerging markets higher, according to a report released on April 10.
Talks in Islamabad failed to produce an agreement, but the DXY trading near levels seen in the early days of the conflict suggests markets believe some progress toward de-escalation has been made. Option flow and skew point to a bias for de-escalation trades, particularly favoring the euro and emerging markets higher.
BofA’s technical matrix shows momentum is turning in favor of the euro, Australian dollar, and emerging markets, while signals for the dollar are more neutral.
However, BofA remains cautious about near-term dollar weakness. Without a more durable ceasefire agreement, the risks of a re-escalation or fears of a global growth shock resulting in dollar rallies remain high, the bank said.
BofA is bullish on EURJPY regardless of de-escalation outcomes. The Japanese yen was the only currency in G10 last week which neither benefited in spot or skew versus the dollar, and its downtrend versus the euro is supported by positioning and investor sentiment.
Demand for EURJPY appears broad as investors across time zones have bought the pair since the end of March. Higher oil prices are likely to weigh on Japanese data going forward, making the yen more vulnerable to a persistent energy shock than the euro, according to the bank.
The main risk to EURJPY higher is intervention by the Ministry of Finance, but with the dollar lower since last week the near-term likelihood of this has been reduced, BofA said.
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