UBS On-Air: Paul Donovan Daily Audio 'March 2020'

What the desk is arguing

The prevailing narrative is that markets are operating amidst a haze of speculative sentiment, lacking clarity on fundamental data. This observation is echoed in Donovan's commentary, emphasizing how optimism from geopolitical developments can abruptly shift market dynamics based on newly emerging information.

In particular, recent data out of Germany showed a higher-than-anticipated March producer price inflation of 7.5%, largely driven by energy prices. This suggests a more profound inflationary trend that markets have to grapple with, thus complicating the outlook as central banks may misstep in policy if they rely on outdated economic indicators.

Where it sits in our coverage

Our consensus target for the EUR/USD pair is set at 1.075, with a range of 1.04 to 1.12. Specific targets include: - jpmorgan: 1.10 - bofa: 1.04

This perspective aligns closely with jpmorgan, which also highlights inflationary pressure, while diverging from bofa, which adopts a more cautious stance. The desk’s call at the midpoint of the spread suggests a balanced view respecting both inflationary concerns and market sentiment volatility.

How other firms see it

Firms such as jpmorgan and citi share a bullish view of the EUR/USD outlook, reflecting an overarching belief in inflationary pressures driving currency movements. Conversely, bofa takes a more cautious position, viewing potential economic recovery with skepticism.

The dynamics around commodities such as oil and metals will likely influence positions in currency pairs directly affected by these sectors, especially USD/EUR and USD/CAD as they respond to evolving inflation narratives.