Citi Research has recently taken a more negative stance on risk, advising investors to sell any EUR/USD rallies. This shift in sentiment comes as the U.S. bank expresses concerns about increasing volatility leading up to the U.S. election and the possibility of a recession in the United States.
The EUR/USD pair has seen some fluctuations, trading slightly higher at $1.0926, despite a 0.3% drop over the past week. The nonfarm payrolls report has reinforced the bearish outlook on risk, prompting the markets to reassess the likelihood of a hard landing. Consequently, safe haven currencies have outperformed, leading to unwinds in crowded carry positions.
Focus on Labor Market and Growth
Citi analysts emphasize the importance of the labor market and growth data in influencing market sentiment. They suggest that upcoming U.S. retail sales and initial claims figures will have a greater impact on the risk environment than inflation data. The shift in focus highlights the tactical nature of current trading conditions, with markets reacting swiftly to new information.
Citi has adjusted its forecast for Federal Reserve actions, now expecting a total of 125 basis points in rate cuts by the end of the year. This contrasts with market expectations of around 100 basis points in cuts, indicating a more dovish stance from Citi. The asymmetrical repricing reflects concerns about persisting weakness in the labor market and its implications for the broader economy.
Overall, Citi Research’s cautious outlook on risk and monetary policy reflects the current uncertainty and volatility in the global financial markets. Investors should closely monitor key economic indicators and developments to navigate the evolving landscape effectively. As market conditions continue to shift, adaptability and a nuanced understanding of risk factors will be crucial for successful investment strategies.
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