Bank of America anticipates a generally positive outlook for the euro, particularly against the USD, CHF, and JPY due to geopolitical events and fiscal policies in Europe. Despite appearing overvalued by traditional metrics, structural demand and asymmetric USD risks may bolster the EUR, especially with upcoming NATO and EU summits.

BofA suggests the euro holds an advantage over USD, CHF, and JPY, but remains cautious with GBP and Scandinavian currencies. The euro’s overvaluation might indicate strong demand and unique interest rate and risk sentiment correlations. US tariffs could weaken the USD, as the Fed has limited scope for response, while the ECB has options to stimulate growth.

Key Economic Summits

EUR might gain from structural reforms and potential fiscal stimulus, with German infrastructure spending further boosting fiscal support. The euro’s prospects depend on upcoming summits, with possible EUR-related announcements enhancing EU unity and fiscal policy credibility. Events to watch include:

– NATO defense ministers’ meeting on June 5
– Full NATO summit from June 24-25
– EU leaders’ summit from June 26-27

Bank of America foresees the euro gaining from geopolitical influences and USD risks, with potential further momentum post-summits, depending on defense and fiscal policies unveiled.

Bank of America’s position, at its core, is rooted in the belief that the euro could strengthen over the coming months, not merely because of relative currency dynamics, but due to the alignment of structural factors in its favour. They’ve acknowledged that by conventional valuation models, the euro may appear somewhat expensive—yet this hasn’t deterred their outlook, which they justify through non-traditional demand channels and geopolitical tailwinds that may not be immediately priced into the market.

The suggestion here is that the euro, while technically overbought by historic ratios or traditional models, is benefiting from deeper-rooted flows. These don’t necessarily fade because of short-term corrections—they often emerge when policy clarity and cross-border alignment reinforce confidence in the union itself. The euro’s relative strength, particularly against the dollar, yen, and franc, is seen as a function of both domestic European action and American constraints. For example, Washington’s potential trade actions—namely tariffs—are unlikely to be met with an aggressive monetary response, given the Federal Reserve’s limited headroom. In contrast, policymakers in Frankfurt appear willing—and able—to take supportive fiscal and monetary action if needed.

Investment and Market Strategies

Structural reforms in Europe—especially when paired with fiscal tools such as targeted spending in Germany—might signal to markets that political cohesion is being translated into practical stimulus. Those kinds of measures tend to amplify foreign demand for euro-denominated assets, particularly when combined with long-standing underweights from institutional portfolios.

Now, with three major political meetings scheduled within weeks of each other, attention inevitably turns towards the potential for action or announcements that reinforce long-term investment narratives. The June defence ministers’ gathering, a precursor to NATO’s formal summit later in the month, could reveal further alignment on spending commitments or joint policy positions. Collectively, this could have a warming effect on sentiment towards European coordination—even outside of defence.

For those of us monitoring derivatives, recent price action, skew favours, and implied-volatility structures suggest the market is positioning for directional strength, though perhaps with intermittent hesitation. This does not imply chasing prices higher. Rather, use implied vols around the summit dates as reference points for potential breakouts or reversal signals. Low gamma environments heading into macro events typically speed up moves once clarity arrives.

What the analysts are trying to communicate—without expressly stating it—is that euro strength may be less about trading current data and more about preparing for upcoming re-pricing of risk premiums across major G10 currency pairs. We’re inclined to treat upcoming political calendar moments not just as headline risks, but as catalysts for structural realignment in long-term risk preferences.

Importantly, traders should watch for moves in relative rate differentials, particularly if attention on US trade policy intensifies. Any Fed hesitancy—especially in the face of further taxation or slowing consumer spending—would create a backdrop where even modest EU policy actions appear decisive. Should bund yields begin to diverge materially from Treasuries, there may be an opportunity for directional bets favouring European currency resilience.

We are entering a period where positioning needs to be more sensitive to headline-adjusted vol trends, not simply trailing data sets. The price of optionality, especially over these political dates, may still undershoot the size of the directional moves we’re likely to see. That in itself is a tradable insight.

In preparing strategies for the coming weeks, think more in terms of movement triggered by policy cohesion than data surprises. These meetings don’t just signal political priorities—they often precede announcement windows that quickly adjust sentiment across asset classes. Option structure, calendar spreads, and gamma positioning linked to EU cohesion should all be reviewed with this framing in mind.

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