Oil prices surge to two-week winning streak as Iran supply fears grip markets
Ahead of today’s Nvidia (NASDAQ:NVDA) earnings report, we think a miss could have wider risk sentiment and FX implications than a beat. Among G10 currencies, AUD remains the most vulnerable to stock market turmoil, in our view. The US dollar reaction will tell us how much AI concerns are US-specific. The CEE region remains on a dovish wave, also thanks to strong FX
USD: Reaction to Nvidia Earnings Could Be Telling
Calm returned to tech stocks yesterday, but it looks tentative ahead of today’s high‑stakes Nvidia earnings. With some investor unease around AI stocks still lingering, Nvidia will probably need to beat consensus and offer strong guidance to provide meaningful reassurance. At this stage, the downside risks to global risk sentiment from a miss appear larger than the upside from a beat.
In the developed currency market, an earnings miss would place AUD, NZD and NOK most at risk. Among them, AUD is in a particularly stretched overbought position, with CFTC data showing the largest speculative long positioning in G10. A slightly hotter-than-expected 3.8% January CPI print in Australia overnight gave an extra bit of support to AUD, with a hike in May now priced in. A strong domestic story would fall short of protecting AUD in an equity correction, though.
If the USD were to fall alongside high‑beta FX, it would be a concerning signal that markets are developing broader, US‑specific worries linked to AI revaluations. We sense that this is less likely, and that the dollar will instead continue to respect its somewhat reduced – but still negative – correlation with US equities.
Yesterday, US data was supportive for the dollar, with consumer confidence rising to 91 in the February print, while last month’s drop was downsized in the revision. In his State of the Union address, US President Donald Trump focused on the economy and falling inflation, but also reiterated the possibility of conflict with Iran, although he prefers a peaceful solution.
Unless Nvidia’s earnings rock the market, we continue to favour a 97.50-98.0 range for DXY.
EUR: Valuation Still Unsupportive
There are a few final data releases in Europe (German GDP, eurozone CPI) today – hardly market-moving at all. Tomorrow’s speech by ECB President Lagarde at the EU Parliament is the only potential domestic driver for the euro this week, ahead of flash CPI figures on Friday.
EUR/USD has continued to trade in short-term overvaluation territory despite the recent decline in spot prices. The 2-year swap rate differential has widened some 10bp in favour of the dollar throughout February, and oil price increases have also contributed to keeping EUR/USD fair value under pressure.
That said, concerns about concentration risks in the US remain quite vivid and are likely to continue encouraging buying on EUR/USD dips. We are still inclined to think the 1.1750-60 support can hold for now.
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