Macro Freestyle – 2025 in review: A liquidity-fuelled rally
At a Glance
The desk posits that the liquidity-driven rally in financial markets, as highlighted by Standard Chartered, is likely to persist into 2026, driven by evolving global trade dynamics and the risk of deflation in China. Per the full note source, the analysis suggests that emerging market (EM) assets may benefit from this liquidity environment, potentially leading to reduced cross-asset volatility. The desk underscores the importance of monitoring central bank policies and liquidity conditions as key determinants of market direction. With the consensus target for the EUR/USD at 1.075, the desk's view aligns with expectations of continued strength in the euro against the dollar.
Full Analysis
What the desk is arguing
The desk argues that the liquidity-fueled rally in financial markets, as discussed by Standard Chartered's Eric Robertsen and Madhur Jha, is poised to maintain its momentum into 2026. This outlook is underpinned by the evolving landscape of global trade and the deflationary pressures emerging from China, which could bolster demand for EM assets and stabilize cross-asset volatility.
Supporting this view, Standard Chartered notes that the current liquidity conditions are favorable for risk assets, suggesting that the ongoing influx of capital could sustain market rallies. The firm emphasizes that the interplay between global trade dynamics and monetary policy will be critical in shaping market trajectories.
Where it sits in our coverage
Our consensus target for the EUR/USD stands at 1.075, with a range of 1.04 to 1.12. Notable targets from other firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with the broader consensus, particularly with jpmorgan's target sitting at the upper bound of the range, indicating a bullish sentiment towards the euro relative to the dollar.
How other firms see it
Firms like jpmorgan and citi share a similar bullish outlook on the euro, suggesting a consensus around the potential for continued strength in the currency. Conversely, bofa presents a more cautious stance, advocating for a lower target that reflects concerns over potential economic headwinds.
Key indicators to watch include the trajectory of the EUR/USD and the implications of central bank policies, particularly from the ECB and the Fed, as these will influence market sentiment and positioning.
What the calendar says
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From the original
Standard Chartered’s Eric Robertsen, Global Head of Research and Chief Strategist, and Madhur Jha, Head of Thematic Research, examine whether the liquidity-driven rally in financial markets can sustain its momentum into 2026, how global trade and China’s deflation risk are evolvi
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4 itemsMacro Freestyle – The changing global outlook
The desk argues that the ongoing geopolitical tensions, particularly the Middle East conflict, are creating significant discrepancies between market expectations and macroeconomic realities, particularly regarding growth and inflation. Per the full note [source], Standard Chartered highlights that while markets are fixated on inflationary pressures, they are underestimating the potential for demand destruction across various economies. This misalignment could lead to a recalibration of central bank policies, particularly as inflation persists longer than anticipated, impacting discretionary spending and investment decisions.
Macro Freestyle: Focusing on the fiscal
The desk posits that fiscal sustainability in the US and China will be pivotal in shaping financial markets through H2-2025, particularly impacting rates and FX dynamics. Per the full note from Standard Chartered, the discussion highlights that limited fiscal space in emerging markets (EM) could exacerbate growth challenges, suggesting a potential divergence in economic trajectories between developed markets (DM) and EM economies. Current fiscal pressures could lead to increased volatility in FX markets, especially as central banks navigate these challenges. The consensus view among firms suggests a cautious approach to positioning, with a focus on the implications of fiscal policy on currency valuations.
Macro Freestyle: What to watch as we enter H2
As we transition into the second half of the year, the desk emphasizes the critical impact of geopolitical tensions, oil price fluctuations, and upcoming tariff deadlines on FX markets. Per the full note from Standard Chartered, these factors are expected to shape market dynamics significantly, particularly in the context of Fed policy and inflation expectations. The consensus target for EUR/USD sits at 1.075, with a range between 1.04 and 1.12, indicating a cautious outlook amidst these uncertainties.
Macro Freestyle – The risk of a carry trade unwind
The desk is highlighting the increasing risk of a carry trade unwind, particularly in light of geopolitical tensions and diverging inflation trends between the US and China. Per the full note from Standard Chartered, the potential for heightened market volatility is significant, especially as investors reassess their positions in emerging markets (EM) amidst these uncertainties. The commentary underscores the importance of monitoring key developments that could trigger a broader reversal in global positions. As we approach critical economic indicators, the implications for currency pairs could be substantial.
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