Midterm elections provided the hyperscalers with the excuse they needed to cut back on spending, says Jefferies strategist
The recent commentary from Jefferies strategist Chris Wood underscores a pivotal shift in sentiment towards technology investment, particularly in the AI sector, following the midterm elections. As hyperscalers recalibrate their capital expenditures, there’s a growing consensus around diversifying portfolios to sectors like pharmaceuticals and emerging markets such as India, Brazil, and China. This pivot is crucial as it reflects broader economic trends and investor sentiment, making it imperative for FX traders to reassess currency positions in light of these developments.
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 view aligns more closely with the upper third — JPMorgan and ING share that framing.
How firms align
Notably, JPMorgan's recent positioning reflects a bullish outlook that aligns with the trends outlined by Jefferies, targeting 1.10 for Mar26. Conversely, BofA presents a more cautious stance with a target of 1.04 for the same tenor, suggesting a divergence in views across the landscape.
What the data shows
Recent updates indicate a potential softening in the AI investment narrative, prompting analysts to reassess sector performance. The change in sentiment aligns with our data showing growing investor interest in alternative markets, particularly in emerging economies. For further details, refer to our research at /research/... .
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Hyperscalers cutting back on AI capex suggests broader economic adjustments.
- 02Pharma and emerging markets are becoming attractive FX plays.
- 03Monitor FX positioning as capital flows are likely to shift.
- 04Continued interest in India, Brazil, and China could strengthen those currencies.
Market implications
Traders should watch the 1.075 level in EUR/USD, as breaking it could prompt further shifts in sentiment and positioning. Look for upcoming earnings reports and economic data releases that may influence capital flow towards emerging markets.
Risks to this view
A resurgence in AI investment or unexpected economic data could invalidate the currently bearish take on the USD. Any notable policy changes or market interventions by central banks in established or emerging markets would also necessitate a reevaluation of this view.
Sentiment by currency
USD~EUR~JPY~GBP~Composite USD score: +0.00
Sources & References
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