Investors Run Back to AI Stocks, Less Than a Week After a Historic Selloff
Investors are favoring AI stocks again following a significant selloff, with CoreWeave reporting impressive results that revitalized tech equities. This resurgence suggests a recovery in risk appetite, which is supporting the USD. The strength of US stocks may also lead to the unwinding of yen-funded carry trades, further underscoring the correlation between equity performance and currency movements. As sentiment shifts towards growth, attention is drawn to how these dynamics will play out in FX markets in the coming days.
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). This range shows a mixed sentiment, underscoring the uncertainty in market reactions to risk-on vibrations. The recent performance in tech could cause some traders to reconsider their positions, particularly regarding USD strength.
How firms align
Goldman Sachs is aligned with the bullish sentiment around USD, setting a target of 1.10 for EUR/USD, which falls in line with the tech rebound lifting US equities. In contrast, BofA has a more conservative view, expecting only a drop to 1.04, indicating hesitance about the length of this risk-on rally. For more information, see our internal /reports/jpmorgan and /reports/bofa pages.
What the data shows
Recent forecasts indicate a bullish tilt toward the USD as tech stocks lead the way after a dramatic correction. Our analysis suggests that stronger earnings from tech firms can provide substantial support for USD strength, as highlighted in our related Insight on equity and FX correlation available at /research/tech_fx_correlation.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01AI stock surge boosts risk appetite, favoring USD.
- 02Traders should monitor for potential unwinding of yen carry trades.
- 03Expect heightened volatility around tech earnings as a catalyst.
Market implications
Watch for confirmation of USD strength at levels around 1.075 for EUR/USD, particularly as earnings from tech companies continue to roll in. Key dates include upcoming earnings reports which may influence sentiment further.
Risks to this view
Any reversal in tech momentum, driven by disappointing earnings or macroeconomic news, could rapidly shift sentiment, leading to a stronger yen. A renewed focus on inflation data might also pressure USD's current trajectory.
Sentiment by currency
USD+EUR~JPY GBP~Composite USD score: +0.65
Sources & References
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