What was really behind Wednesday's monster rally? Trump quickly making peace
Following the U.S. midterm elections, equities experienced a sharp rally as President Trump indicated he would concede to the election results. This development provided a sense of stability to the markets, alleviating fears of a protracted political dispute. The positive sentiment likely reflects a broader appetite for risk among investors, potentially impacting the USD in the context of global currency movements. Such political resolutions tend to bolster confidence in market continuity, making this moment critical for macro strategy.
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 market's uplift in response to the election results suggests a tilt in sentiment toward the optimistic range presented by firms aligned with this view.
How firms align
Goldman Sachs' buy-side positioning aligns with the general sentiment expressed in the market, projecting a target of 1.12. Conversely, BofA’s positioning suggests a more cautious estimate at 1.04, implying skepticism about sustained bullish momentum. Refer to our internal /reports/goldman and /reports/bofa for detailed insights.
What the data shows
Recent forecasts indicate that the political landscape plays a pivotal role in currency valuations. This week's developments may catalyze a reassessment of risk indicators in the coming trading sessions. For a deeper analysis, refer to /research/election-impact.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01U.S. stock surge indicates market optimism following election clarity.
- 02FX traders should watch for a potential uptick in risk-on positioning.
- 03Recent rally could push EUR/USD towards key resistance levels, such as 1.08.
- 04Market uncertainty hinges on upcoming Fed decisions.
Market implications
Next week, the focus will be on the Fed's commentary and subsequent meeting, with particular attention at the 1.08 level for EUR/USD. Our consensus suggests that continued positive sentiment could push prices higher, depending on data confirmation from both U.S. and European fronts.
Risks to this view
A shift in the political narrative or unexpected Fed signals may undermine this bullish view. Specifically, if inflation data surprises to the upside, it might lead to a recalibration of perceived monetary policy steers.
Sentiment by currency
USD+EUR JPY GBPComposite USD score: +0.65
Sources & References
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