Investing.com – The euro is enjoying bullish momentum at the moment, according to Bank of America Securities, and this looks likely to continue.
The sell-off in the US dollar was undoubtedly the focal point of the foreign exchange market in August, while investors may not have sufficiently appreciated the broad rally in the euro, analysts at Bank of America said in a note dated August 26.
However, the euro’s nominal effective exchange rate (NEER) has so far appreciated by 1.1% on a trade-weighted basis, ranking 80th compared to the past 20 years, the bank added.
The euro’s strength is not just due to the immediate double-dip breakout, the central bank said, as the euro may have the most upside momentum in the near term among G10 currencies other than the US dollar.
“Over the past month, the 1m deviation (the current risk-on-volatility reflection) has risen 12% for EUR/USD call options, the highest level ever among all USD/G10 pairs,” Bank of America said.
With this in mind, and given the momentum the euro has, the bank recommends a bullish view on the pair this week.
“EUR/SEK stands out as an attractive candidate for us as the pair has returned -3% over the past month, ranking third over the past decade,” the bank said. “The EUR/SEK spot move has been in contrast to the bullish euro options flow and is out of balance against the two-year EU-Swiss interest rate differential.”
Bank of America added that the Swedish krona’s rally is overdone and, in our view, has been largely driven by the unwinding of existing short Swedish krona positions and speculators treating the Swedish krona as a “high-beta” proxy for the euro amid this month’s risk-on recovery.
“With EUR/SEK now falling to trendline support and the 200-day SMA, the level has become attractive enough to tactically beat EUR/SEK’s move so far this month.”
At 06:15 ET (10:15 GMT), the EUR/SEK pair was down 0.1% at 11.3905.