Bank of America is optimistic about the euro’s future, particularly against the USD, CHF, and JPY. This positive outlook stems from geopolitical events and fiscal policies in Europe. Although conventional measures suggest the euro is overvalued, strong structural demand and unique risks related to the USD may support the euro, especially with upcoming NATO and EU summits. BofA believes the euro has an edge over the USD, CHF, and JPY but remains careful around GBP and Scandinavian currencies. The euro’s perceived overvaluation could signal robust demand, along with specific interest rate and risk sentiment ties. US tariffs might weaken the USD since the Fed’s options are limited, while the ECB has more tools to stimulate growth. The euro may benefit from potential fiscal stimulus and structural reforms, particularly with increased infrastructure spending in Germany. The euro’s future will depend on announcements made during upcoming summits, which could strengthen EU unity and fiscal policy credibility. Key events to watch include: – NATO defense ministers’ meeting on June 5 – Full NATO summit on June 24-25 – EU leaders’ summit on June 26-27 Bank of America expects that geopolitical factors and USD risks might push the euro higher, especially after the summits depending on new defense and fiscal policies. BofA believes the euro could strengthen over the next few months. This isn’t just about currency comparisons but also about favorable structural factors. They recognize that traditional valuation models may suggest the euro is expensive, but they still remain positive due to unique demand sources and geopolitical support that may not yet be reflected in the market. The idea here is that although the euro may seem overbought based on historical standards, it is strengthened by more significant flows that aren’t likely to diminish with short-term price shifts. These effects tend to grow when there’s clearer policy direction and support for European unity. The euro’s strength against the dollar, yen, and franc comes from both European actions and constraints in the U.S. For example, potential U.S. trade policies, such as tariffs, may not lead to strong monetary responses, given the Federal Reserve’s limited options. In contrast, policymakers in Frankfurt seem ready to take action if needed. Structural reforms, especially combined with targeted spending in Germany, can show markets that political unity translates into practical support. Such measures often increase foreign interest in euro-denominated assets, particularly from institutional investors who have historically underweighted them. With three significant political meetings coming up within weeks, all eyes are on potential announcements that could shape long-term investment views. The June defense ministers’ meeting and the NATO summit later could reveal agreements on spending and policies, boosting sentiment around European cooperation—even beyond defense. For those watching derivatives, recent movements and volatility structures indicate the market is preparing for upward movement, though with some caution. This doesn’t mean chasing higher prices, but rather using volatility around summit dates as indicators for potential breakouts or reversals. Generally, lower volatility before significant events can speed up movements once clarity is achieved. Analysts imply that the euro’s strength might be less about current data and more about anticipating changes in risk premiums across key G10 currencies. Upcoming political events should be seen as catalysts for long-term shifts in risk preferences, not just as headline risks. Traders should particularly monitor changes in interest rates, especially if U.S. trade policies come under closer scrutiny. Any hesitation from the Fed—especially in light of new taxes or slowing consumer spending—could make even small EU policy actions seem impactful. A significant rise in German bund yields compared to U.S. Treasury yields may create opportunities for bets favoring the euro. We are entering a time where it’s crucial to pay attention to volatility trends influenced by headlines rather than solely relying on past data. The cost of options, especially surrounding these political dates, may not fully capture the potential size of expected movements. This insight presents a trading opportunity. As you prepare for the coming weeks, consider that movements may be driven more by policy unity than by unexpected data releases. These meetings signal political priorities that can lead to announcements, quickly changing sentiment across asset classes. Review option structures, calendar spreads, and positioning related to EU unity with this perspective in mind.

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