The stock-market rally keeps spreading beyond Big Tech. October inflation data could put it to the test.
The broader stock market rally signals a potential shift in risk sentiment, moving beyond just Big Tech as investors look for opportunities in a post-inflation environment. This pivot is particularly relevant as the upcoming CPI report may influence the path of monetary policy, impacting FX markets. Volatility is expected as Federal Reserve speakers provide insights that could challenge the recent momentum across equity indices, prompting traders to reassess their positions ahead of any inflation readings.
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). The upcoming CPI report is anticipated to play a crucial role in shaping near-term trading strategies and aligning expectations in the FX space.
How firms align
Goldman sees the potential for a stronger euro against a backdrop of diminishing inflationary pressures, aligning their target with the bullish sentiment of the broader market rally. Conversely, BofA maintains a more bearish outlook, with their target considerably lower, reflecting caution towards the interlinked movements in equities and currencies. Refer to our internal coverage for indepth analysis of their positions.
What the data shows
Recent analyses cite a divergence in inflation expectations that may drive further adjustments in positioning. For more insights on market reactions to inflation data, see /research/<slug>.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Equity market rally broadening could shift FX dynamics ahead of inflation data.
- 02Risk sentiment may pivot based on CPI data and Fed commentary.
- 03Watch for EUR/USD reactions around key inflation prints; targets could shift significantly.
- 04Expect volatility if inflation deviates from consensus.
Market implications
Traders should closely monitor the upcoming CPI report scheduled for Tuesday, which is pivotal for validating the current market rally. If inflation outperforms expectations, we may see a stronger EUR/USD test levels around 1.075, our consensus target.
Risks to this view
A significant miss on inflation expectations or dovish Fed rhetoric could undermine the current equity and FX rally, potentially sending EUR/USD tumbling below the 1.04 mark established by BofA.
Sentiment by currency
USD~EUR~JPY~GBP~Composite USD score: +0.00
Sources & References
How we cover this story