Wall Street Bonus Bonanza; Plus, U.S. Trade Deficit Widens
Today’s report highlights a widening U.S. trade deficit, reinforcing bearish sentiment around the USD. The expansion of the deficit reflects ongoing economic stresses, coupled with a significant increase in dollar supply in the foreign exchange markets. With Wall Street bonuses reportedly reaching new heights, we may observe a short-term inflow of capital, yet the broader implications of a deteriorating current account could weigh heavily on the dollar's value, particularly against EUR and JPY. This backdrop raises questions about the sustainability of the USD in light of increasing foreign demand for dollars.
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 outlook is tested by the backdrop of a widening U.S. trade deficit which presents headwinds for the dollar. The recent USD bearish sentiment reflected in our scoring (-0.35) suggests that the market has already begun to factor in these negative developments.
How firms align
Aligned with our bearish outlook on the USD, JPMorgan projects a target of 1.10 for EUR/USD, asserting that ongoing economic challenges in the U.S. will lead to a weaker dollar. Conversely, BofA's target of 1.04 suggests a more cautious, contrary view, indicating a potential rebound in demand for the dollar if economic indicators shift positively. Further details can be referenced in our internal reports on these firms.
What the data shows
Recent forecasts indicate a growing reluctance among investors to hold USD-denominated assets, correlated with the worsening trade balance. For more insights, see /research/us-trade-deficit-impact on our platform.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01USD bearish sentiment grows amid widening trade deficit.
- 02Watch for capital flows post-bonus season influencing USD liquidity.
- 03Risk remains around a potential USD recovery if trade figures improve.
- 04Increasing foreign supply of dollars could keep pressure on USD.
Market implications
Traders should focus on the 1.075 level for EUR/USD, as a break above this threshold could confirm growing bearish sentiment on the USD. Key calendar events include upcoming trade balance releases which may provide further clarity on the dollar's trajectory.
Risks to this view
The primary risk to this bearish view is a substantial improvement in the trade balance, potentially signaling recovery in the U.S. economy. A positive turnaround in economic data could prompt swift repositioning towards the dollar.
Sentiment by currency
USD EUR~JPY~GBP~Composite USD score: -0.35
Sources & References
How we cover this story