Global 2022 Outlook - Still battling headwinds (Part 1)
At a Glance
The desk believes that the global economic recovery, while bolstered by policy support and vaccine distribution, remains uneven and presents both opportunities and risks for FX traders. Per the full note from Standard Chartered, the unevenness of recovery could lead to differentiated monetary policy responses across major economies, impacting currency valuations. Current positioning suggests a cautious approach as investors weigh these factors against potential inflationary pressures and central bank actions. As we look ahead, the upcoming economic data releases will be crucial in shaping market expectations.
Key Takeaways
- 01The global economic recovery remains uneven, impacting currency valuations.
- 02Divergent monetary policies are expected as central banks respond to local conditions.
- 03Inflationary pressures could lead to rate hikes in some economies.
- 04Upcoming economic data releases will be critical for market positioning.
Full Analysis
What the desk is arguing
The desk posits that the global economic recovery is on a fragile path, influenced heavily by ongoing policy support and the pace of vaccine rollouts. Per the full note from Standard Chartered, this uneven recovery could create volatility in currency markets as different regions respond to economic conditions at varying rates.
Supporting this view, the note highlights that while some economies are rebounding strongly, others lag significantly, which could lead to divergent monetary policy trajectories. This is particularly relevant as central banks reassess their stances in light of inflationary pressures, with the potential for rate hikes in some jurisdictions while others maintain accommodative policies.
Where it sits in our coverage
Our consensus target for the EUR/USD is 1.075, with a range from 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which sees a stronger euro as the recovery progresses, while it diverges from bofa, which anticipates a weaker euro against the dollar, reflecting a more cautious outlook on the recovery.
How other firms see it
Firms like jpmorgan and citi are aligned in their bullish outlook on the euro, suggesting that the recovery will support a stronger currency. Conversely, bofa holds a contrary view, expecting the euro to weaken due to persistent economic challenges in the Eurozone.
Key indicators to watch include the upcoming ECB meeting and U.S. inflation data, as these will likely influence the EUR/USD trajectory and reflect central bank policy adjustments.
What the calendar says
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Market Implications
Watch for the EUR/USD to test levels around 1.075 as economic data releases provide insights into recovery trajectories. Positioning signals may shift as central banks signal their policy intentions in response to inflation.
From the original
The global economy continues to recover thanks to aggressive policy support and as vaccine coverage improves. But the recovery, like vaccine distribution, remains uneven. What’s in store for investors over the next 12 months? In part 1 of this 2-part series our economists Eric Ro
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