Goldman Sachs flags shrinking supply shock in USD outlook, sees delayed dollar weakness - Investing.com Nigeria
The desk interprets Goldman Sachs' analysis of a diminishing supply shock in the USD outlook as indicative of delayed weakness in the dollar. Per the full note source, with supply concerns easing, traders should be prepared for a more gradual depreciation path for the dollar rather than an immediate decline. This thesis finds resonance amid near-term economic indicators suggesting that shifts in supply chains could mitigate inflationary pressures, allowing for a more stable dollar environment. As we look ahead, the absence of significant catalyzing events in the upcoming weeks provides the backdrop for such a gradual adjustment in dollar value.
What the desk is arguing
The desk posits that Goldman Sachs' identification of a shrinking supply shock suggests a more tempered outlook for USD depreciation. The commentary indicates that as supply chain disruptions relent, the pressure on the dollar is less intense, which may lead to a delay in expected weakness.
Supporting this thesis, Goldman highlights that improvements in supply levels could impact inflation dynamics positively. This could relieve some pressure on the Federal Reserve, possibly allowing interest rates to stay stable for longer, which plays a critical role in dollar valuation.
Where it sits in our coverage
Our current consensus target for EUR/USD stands at 1.075, with a range spanning from 1.04 to 1.12. Notable targets from key firms include: - JPMorgan: 1.10 (Mar26) - BofA: 1.04 (Mar26)
This viewpoint aligns closely with JPMorgan, which anticipates a dollar depreciation towards 1.10, but contrasts with BofA, which is more pessimistic about the dollar's trajectory at 1.04.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Goldman Sachs sees a reduced impact from supply shocks on the USD.
- 02Delayed dollar weakness is expected due to easing supply chain disruptions.
- 03Current dollar valuations may not reflect looming inflationary adjustments.
- 04April’s economic data will likely be critical in shaping near-term dollar sentiment.
Market implications
Traders should keep an eye on the 1.075 level for EUR/USD as it serves as a psychological pivot point. The lack of impactful economic events in the coming weeks suggests that the current themes regarding USD strength or weakness could dominate market movements absent external shocks.
Risks to this view
A resurgence in supply chain issues or unexpected economic data indicating persistent inflation could invalidate this bullish outlook on the dollar. If inflation remains entrenched, this might lead the Fed to adopt a more aggressive stance, driving the dollar higher contrary to current projections.
Sources & References
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