Macro Freestyle: Living with low volatility and high uncertainty
At a Glance
The desk argues that the current low volatility environment, coupled with high uncertainty surrounding macroeconomic factors, particularly the muted market response to the US government shutdown, presents both risks and opportunities for FX traders. Per the full note from Standard Chartered, this situation may lead to overlooked risks in G10 and emerging markets, especially if global growth weakens. The desk highlights that the US dollar could benefit from these dynamics, particularly as AI developments continue to evolve. With a consensus target of 1.075 for USD/EUR, the desk is positioned at the upper end of the current market spread, suggesting a bullish outlook amidst prevailing uncertainties.
Full Analysis
What the desk is arguing
The desk frames this as a critical juncture where low volatility belies significant underlying risks, particularly in light of the US government shutdown. Standard Chartered's analysis indicates that financial markets are not fully pricing in the potential fallout from these macroeconomic uncertainties, which could lead to increased volatility in the future.
Supporting this view, the desk notes that the fiscal outlook for both G10 and EM economies remains precarious, especially if global growth falters. The muted market response to the shutdown may suggest complacency, which could be challenged by sudden shifts in sentiment or economic data releases.
Where it sits in our coverage
Our consensus target for USD/EUR stands at 1.075, with a range from 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.12 (Mar26)
This view aligns with jpmorgan, which shares a similar bullish outlook, while bofa presents a more cautious stance at the lower end of the range. The desk's positioning suggests a belief that the USD may strengthen against the backdrop of global uncertainties.
How other firms see it
Firms like jpmorgan and citi are aligned with the desk's bullish outlook on the USD, reflecting a consensus that the dollar could appreciate in the face of global economic challenges. Conversely, bofa holds a contrary view, anticipating a weaker dollar trajectory.
Traders should keep an eye on the USD/EUR pair as it reflects broader market sentiment, particularly in relation to upcoming economic indicators and central bank communications that could influence volatility and risk sentiment.
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 financial markets’ muted response to the US government shutdown, which risks are being overlooked, and the fiscal outlook for G10 and EM economies i
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