Don’t panic - 2022 is almost over
The desk interprets the Nordea commentary as a reminder to remain cautious with the 2023 outlook, which may continue to be turbulent. Per the full note source, the assertion that crises often lead to structural changes suggests that traders should be prepared for significant market volatility fueled by geopolitical and economic headwinds. With the risk environment remaining fraught, institutional players should leverage agility in their FX strategies as potential crises materialize. The outlook for monetary policy, particularly shifts seen from major central banks, will likely be a primary driver of currency movements in the upcoming weeks.
What the desk is arguing
The desk emphasizes that the warning from Nordea's Trocmé and Sonebäck about the potential unrest in 2023 should be taken seriously as it reflects broader market sentiment. They argue that the turbulence experienced in 2022 set a precedent for what could be expected in the near future. Per the full note source, the podcast highlights that structural changes often arise from crises, which may amplify market volatility and affect risk assets, including FX pairs.
Recent developments, particularly those surrounding inflation and central-bank responses to economic challenges, have led traders to reassess currency positions actively. Historically, year-end positions tend to create liquidity shortages, which can exacerbate volatility as investors unwind their trades heading into 2023.
Where it sits in our coverage
Given the implications of geopolitical unrest, our current consensus for EUR/USD is 1.075, ranged from 1.04 to 1.12, with notable targets from several institutions, including: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's latest assessment aligns closely with jpmorgan's more optimistic target but is at the upper threshold of the prevailing consensus. The caution from other firms, particularly bofa, indicates a divided stance on how the geopolitical landscape might unfold.
How other firms see it
The overall market sentiment shows a split, with firms such as jpmorgan and others clustering around a more positive outlook for 2023, while bofa adopts a bearish stance. The divergent expectations reflect varying levels of confidence regarding stabilization in the face of ongoing uncertainty.
Traders should also watch the USD/JPY trend, which will likely be responsive to any shifts in the Bank of Japan’s monetary policy, as this will intersect significantly with broader market dynamics influenced by anticipated volatility.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Caution is advised for 2023, with disruptions likely continuing from 2022.
- 02Market volatility may increase due to unresolved geopolitical and economic issues.
- 03Structural changes in the market are often triggered by crises, impacting currency valuations.
- 04Focus on central bank policy shifts to gauge FX movements.
Market implications
Traders should be vigilant about a potential breach of key levels, especially if the EUR/USD stabilizes around 1.075 and liquidity conditions worsen. With no high-impact events on the calendar, watch any unexpected geopolitical developments that may prompt sharp price fluctuations.
Risks to this view
Any signs of significant easing in geopolitical tensions or unexpected strength in economic indicators could undermine the bearish sentiment currently priced in, potentially leading to a stronger USD and altering the EUR/USD dynamics.
Podcast Don’t panic - 2022 is almost over 21-12-2022 When did we last experience a normal year? In this podcast, Johan Trocmé and Viktor Sonebäck review the Nordea On Your Mind topics covered this year and warn that 2023 may not be peaceful and quiet either. But we should not despair; it often takes a crisis to bring positive structural change.
We wanted to show you a Spotify but you cannot see it as you have not enabled cookies Click here to update your consent Nordea On Your Mind is the flagship publication of Nordea Investment Banking’s Thematics team, which produces research for large corporate and institutional clients. The research does not contain investment advice and typically covers topics of a strategic and long-term nature, which can affect corporate financial performance. Top decision makers at Nordea’s large clients across the Nordic region receive Nordea On Your Mind around eight times per year.
The publication’s themes vary widely, and many are selected from suggestions by clients. Examples of covered topics include artificial intelligence, wage inflation, M&A, e-commerce, income inequality, ESG, cybersecurity and corporate leverage. Share on Facebook Share on Threads Share on Linkedin 10-12-2024 Nordea On Your Mind European Energy: More ambitious and immediate action needed to reach Paris Agreement goals What role does the renewable energy transition play in global efforts to limit climate change?
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For answers, our Nordea On Your Mind team reached out to niche steel producer Ovako’s CFO Erik Bohman. Read more 21-11-2024 Nordea On Your Mind Nordea On Your Mind: Energy transition Climate change is already causing major economic damage. The only way to stop it is for the world to invest in the transition to renewable energy.
This will require 2.3% of global GDP to 2050, which is significant, but doable. In their last report, “Energy transition,” our Nordea On Your Mind team explores what investments will be needed and how they could be funded. Read more Scroll to top
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