Aging bull: Why the four-year old stock-market rally can still pack a punch
Despite being four years into a robust stock market rally, historical trends suggest that such longevity may not indicate an imminent downturn. Market participants are increasingly focusing on how this sustained bullish sentiment can influence currency trading, particularly in relation to risk appetite and support for the USD. As traders adjust to the lingering effects of a strong equity market, we could see increased volatility in the FX space, particularly if growth expectations remain elevated.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). Marketwatch's insights align closely with the upper third, reflecting a generally optimistic outlook shared by firms like JPMorgan and ING.
How firms align
JPMorgan maintains an aligned view with a target of 1.10, supporting the premise that the ongoing bull market could fuel currency strength. In contrast, BofA’s target of 1.04 presents a more cautious stance. Further details can be found on our internal reports pages: /reports/jpmorgan and /reports/bofa.
What the data shows
Recent adjustments indicate a strong bullish outlook from several key players, with upward revisions in growth forecasts potentially strengthening the USD. For more insights, refer to our research at /research/currencystrength.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Four-year bull markets typically have further to run, influencing currency dynamics.
- 02Traders should monitor USD sensitivity to stock market shifts and risk appetite.
- 03Watch for potential volatility if growth expectations shift dramatically.
Market implications
Investors should keep an eye on key FX levels, including 1.075 for EUR/USD, which aligns with our consensus, particularly around upcoming economic release dates. The performance of equities could be a significant driver in the next few weeks.
Risks to this view
Any unexpected economic data suggesting a slowdown could shift sentiment rapidly, invalidating the bullish outlook and forcing a reevaluation of currency positions. A significant drop below key structural supports would also be a signal for traders.
Sentiment by currency
USD~EUR~JPY~GBP~Composite USD score: +0.00
Sources & References
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