Six Reasons to Short Euro

BofA recommends shorting EUR/USD via a 1.15/1.13 3-month put spread based on diverging macro data, widening rate spreads, and bullish technical signals for the US Dollar.

Key Takeaways

• 1.Diverging economic data trends favor the US over the Euro Area, with markets underpricing potential Fed hikes.
• 2.Rate differentials (US 2Y-Schatz spread) are widening in favor of the USD, creating a headwind for the EUR.
• 3.Technical indicators, including a potential EURUSD head-and-shoulders top and a DXY 'Golden Cross,' suggest a stronger dollar through the summer.

Table of Contents

• Six reasons to short euro
• A short(er) summer for euro; Buy a 3m put spread
• 1. Diverging data trends between the US and Euro Area
• 2. Rate differentials moving against euro
• 3. Euro at risk of a head-and-shoulders top
• 4. DXY's Golden Cross signal favours summer strength
• 5. DXY is tracking the 2016-2018 cycle (Trump term 1)
• 6. Oil is forming a triangle pattern; tends to favour upside
• USD still underpricing relative fundamentals
• US 2Y - Schatz spread trending higher
• EURUSD: Head and shoulders top forming
• DXY in 2024-2026 has been repeating 2016-2018
• DXY Golden Cross favors summer rally
• Oil: A five-wave triangle pattern points to upside risk

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