Global Q2-22 outlook – recovery, disrupted
At a Glance
The desk interprets the evolving geopolitical landscape and its implications for FX markets, emphasizing that 2022 is shaping up to be defined by a new world order influenced by the Ukraine-Russia conflict and China's ongoing zero-COVID policies. Per the full note from Standard Chartered, this environment is characterized by rising volatility, interest rates, and prices, which are likely to impact currency valuations significantly. With the consensus target for EUR/USD at 1.075, traders should be vigilant about how these macroeconomic shifts play out in the coming months.
Key Takeaways
- 012022 is expected to be defined by geopolitical tensions and economic policy shifts.
- 02Rising volatility, interest rates, and prices are anticipated to impact currency valuations.
- 03The desk's bullish stance on EUR/USD aligns with **jpmorgan**'s target of 1.10.
- 04Caution is advised as **bofa** predicts potential downside for the euro.
Full Analysis
What the desk is arguing
The desk posits that the current geopolitical tensions and economic policies are setting the stage for a significant shift in FX dynamics. Per the full note from Standard Chartered, the interplay between the Russia-Ukraine conflict and China's stringent COVID measures is expected to drive volatility and influence interest rates globally.
Supporting this view, the desk highlights that rising prices and interest rates are already being felt across markets, creating a complex backdrop for currency trading. The expectation is that these factors will lead to a more pronounced divergence in monetary policy among central banks, further impacting currency valuations.
Where it sits in our coverage
Our consensus target for EUR/USD is 1.075, with a range between 1.04 and 1.12. Notable targets from other firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns closely with jpmorgan, which shares a similar outlook, while bofa presents a more cautious stance, suggesting potential downside risks to the euro. The desk's call is positioned at the upper bound of the consensus range, indicating a more bullish outlook on the euro against the dollar.
How other firms see it
Several firms, including jpmorgan and citi, are aligned with the desk's perspective, anticipating that geopolitical tensions will continue to fuel volatility and influence central bank policies. Conversely, bofa and deutsche bank express a more cautious view, suggesting that the current environment may lead to a stronger dollar in the near term.
Key currency pairs to watch include EUR/USD and USD/JPY, as both are likely to reflect the broader shifts in monetary policy and geopolitical developments. The trajectory of these pairs will be closely tied to central bank decisions and economic indicators in the coming months.
Market Implications
Traders should closely monitor the EUR/USD pair, particularly as it approaches the consensus target of 1.075. Additionally, any shifts in central bank policies or geopolitical developments could serve as catalysts for significant market movements.
From the original
If 2021's expectations were influenced by a new world attitude due to the pandemic, then 2022 may end up being about a new world order. The conflict between Ukraine and Russia and the longevity of China's zero COVID plans. Volatility, interest rates and prices are all on the up.
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The desk posits that while global growth is on a declining trajectory, China's post-COVID economic resurgence presents a nuanced narrative that could influence FX markets. Per the full note from Standard Chartered, the uneven distribution of growth benefits across sectors raises questions about sustainability and potential volatility in currency pairs. Current consensus targets reflect a cautious optimism, with key players adjusting their forecasts in light of these dynamics. Traders should remain vigilant as market sentiment evolves in response to these developments.