Stocks Up, Yields Up
The market is witnessing a surge in stock prices and rising yields, reinforcing bullish sentiment for the USD. As Brent crude approaches the $100 mark, investors are leaning into risk-on assets, which is diminishing the appeal of traditional safe havens like the JPY. This environment suggests a potential shift in market dynamics, where stronger energy prices could fuel further inflation concerns, thus perpetuating the upward trend in yields and supporting the dollar. The interconnectedness of these factors underscores the importance of monitoring commodity prices alongside FX movements.
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). [PUBLISHER]’s view aligns more closely with the upper third — JPMorgan and ING share that framing.
How firms align
JPMorgan's target at 1.10 aligns with the current bullish outlook driven by rising yields and crude prices, indicating a strong positioning toward the dollar. Contrarily, BofA maintains a more conservative stance with a target of 1.04, suggesting skepticism around sustained USD strength in the intermediate term.
What the data shows
Recent bullish revisions across several firms reflect a growing confidence in the dollar's position against major currencies, propelled by changing inflation expectations and improved economic indicators. For further insights, refer to /research/market-outlook-2023.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Rising yields and Brent nearing $100 bolster the USD's position against peers.
- 02Traders are closely monitoring energy prices as a key driver for FX volatility.
- 03Expect potential resistance in USD/JPY near 150 as risk appetite shifts.
- 04Watch for upcoming inflation data to provide further market direction.
Market implications
Next, watch for the USD to test resistance levels against the JPY and other currencies, particularly around 150 in USD/JPY. Upcoming inflation reports and employment data will be critical in shaping sentiment ahead.
Risks to this view
A reversal could be triggered by unexpected macroeconomic data that signals a downturn, particularly if inflation data shows signs of subsiding or labor market weakness is displayed, impacting the Fed's tightening path.
Sentiment by currency
USD+EUR~JPY GBP~Composite USD score: +0.60
Sources & References
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Stocks Up, Yields Up