EMEA FX Talking: High yield and CEE remain in demand
At a Glance
The desk asserts that the current environment remains supportive of carry trades, particularly favoring high-yield currencies such as the Turkish lira and CEE currencies like the forint. Despite geopolitical tensions affecting the zloty, moderate adjustments in U.S. interest rates are expected to maintain investor interest in these currencies. Per the full note from ING, the zloty's performance could be short-lived due to external pressures, but the forint's outlook appears more favorable following a recent correction. This sentiment aligns with the broader FX consensus which anticipates minor fluctuations in the EUR/USD, GBP/USD, and USD/JPY pairs as the year progresses.
Key Takeaways
- 01Carry trades, particularly in high-yield currencies, remain in demand despite recent geopolitical risks.
- 02The zloty's temporary weakness is unlikely to last, while the forint shows potential for recovery.
- 03Current FX positions reflect a cautious optimism among traders regarding medium-term rate expectations.
- 04The EMEA region's outcomes are tied to external factors such as U.S. interest rate adjustments and geopolitical developments.
Full Analysis
What the desk is arguing
The desk argues that the carry trade environment remains robust, particularly for high-yield currencies in the central and eastern European (CEE) region. Per the full note from ING, the Turkish lira continues to attract investors, while the forint is expected to regain strength as market sentiment stabilizes following its recent correction.
The zloty has faced recent downward pressure, influenced by rising geopolitical tensions and a prevailing risk-off mood; however, it seems unlikely to face drastic declines in the medium term. ING forecasts that while EUR/PLN recently touched 4.35, this uptick is expected to be transient since they do not foresee interest rate hikes in Poland in the near future, which would typically support the currency.
Where it sits in our coverage
Our current consensus for EUR/USD stands at 1.1700, with forecasts ranging from 1.1200 to 1.2000. Specific firm targets for December 2026 include: - rbc: 1.2000 - ing: 1.1700 - morganstanley: 1.2150
This view aligns closely with the broader FX consensus, where projections suggest moderate upward movement in EUR/USD may occur. However, the morganstanley target is positioned towards the higher end of the range, indicating more bullish sentiments in some segments of the market.
How other firms see it
Aligned firms broadly support the carry trade narrative, with several, including morganstanley and rbc, indicating positive trajectories for both the GBP and JPY pairs. Conversely, firms like nomura and creditagricole foresee some downside risks, reflecting concerns around market volatility and geopolitical uncertainties.
Key related pairs such as GBP/USD and USD/JPY are expected to reflect the BoE and BoJ rate decisions, making them critical to monitor as they could offer insights into broader FX movements.
Market Implications
Investors should watch the EUR/PLN closely, particularly around geopolitical headlines, with an eye on levels near 4.35. Consider any shifts in U.S. rate expectations as potential catalysts for adjustments in the carry trade sentiment across the region.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Goldman Sachs | Bearish | 1.1200 |
MUFG | Bullish | 1.1800 |
J.P. Morgan | Bearish | 1.1300 |
From the original
Articles EMEA FX Talking: High yield and CEE remain in demand Published 11:01 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download A modest adjustment in US interest rates looks unlikely to unnerve the carry trade environment, and investors look likely
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