BofA Merrill Got It Right On Their EUR Tactical Strategy For Trading The ECB

Bank of America Merrill Lynch got it impressively right on their EUR trading strategy for the ECB March meeting. Going into the meeting, BofA made 2 calls: 1. to take profit soon on EUR shorts around the meeting; and, 2. to buy EUR dips post the meeting. EUR/USD followed BofA's projected path dropping to 1.0825 post the ECB policy statement before rebounding aggressively higher to touch a high of 1.1212 as of writing.

Here is how Athanasios Vamvakidis, the head of European FX strategy at BofA put it in the 2 related reports:

"We see the very short-term risks for the EUR as titled to the downside from the ECB meeting...

However, if the Euro does weaken on Thursday, we would be tactical and likely take profits soon. We have argued that global factors are at this point a stronger driver for FX than domestic monetary policies, as the BoJ discovered in January. Post ECB, we see the US data and global market sentiment as the main EUR drivers. In our view, sustained EUR weakness needs the Fed to continue hiking rates, in addition to more ECB easing, and stronger global risk appetite...

...Our strategy remains to trade the Euro tactically. We expect the Euro to weaken further ahead of the ECB meeting, as the bear market rally continues and investors position for more ECB easing. We would also expect Draghi to do his best to avoid another market disappointment. However, we do not expect that more of the same would be enough to offset the global forces that have been driving the Euro this year.

We would buy the Euro dip after the ECB meeting, or even before if markets overshoot. In a bear market, we expect global forces to be a stronger driver for the Euro than monetary policies."

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