EUR/USD extends the consolidation amid widely expected ECB hikes, US-Iran stalemate
At a Glance
Lead — The EUR/USD pair remains in a consolidation phase as traders await clearer signals from both the ECB and the Federal Reserve. Per the full note from Giuseppe Dellamotta, the US dollar has strengthened slightly amid geopolitical tensions and higher-than-expected inflation data, while the euro faces pressure despite anticipated ECB rate hikes. The market is pricing in an 87% probability of a June rate hike from the ECB, but the desk sees limited room for the euro to rally based solely on interest rate expectations. Upcoming US Retail Sales and Jobless Claims data will be crucial in shaping market sentiment.
Full Analysis
What the desk is arguing
The desk believes that the EUR/USD pair is likely to remain rangebound as traders digest mixed signals from the US and Eurozone economies. Per the full note source, the US dollar's recent strength is attributed to geopolitical uncertainties and inflation data that exceeded forecasts, while the euro's potential upside is constrained by the ECB's cautious approach to rate hikes.
The market is currently pricing in a significant chance of ECB tightening, with expectations for 70 basis points of hikes by year-end. However, the desk notes that the ECB's hesitance to aggressively pursue rate hikes, given the current economic landscape, may limit the euro's ability to capitalize on these expectations.
The alternative read would be that if geopolitical tensions ease and inflation pressures subside, the Fed may pivot back to a more dovish stance, which could lead to a weaker dollar and a stronger euro.
Where it sits in our coverage
Our consensus target for EUR/USD is 1.075, with a range from 1.04 to 1.12. Specific firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which sees potential for a stronger euro, while diverging from bofa, which is more bearish on the pair. The desk's call sits near the upper bound of the consensus range, indicating a more optimistic outlook compared to some peers.
How other firms see it
Firms aligned with the desk's view, such as jpmorgan, anticipate a gradual strengthening of the euro as ECB policy tightens. Conversely, bofa and others maintain a more cautious stance, citing economic headwinds that could hinder the euro's performance.
The EUR/USD trajectory is closely linked to the upcoming US economic indicators, particularly Retail Sales and Jobless Claims, which could influence the Fed's policy direction. Additionally, movements in USD/JPY may provide insights into broader dollar strength or weakness.
What the calendar says
With US Retail Sales and Jobless Claims data scheduled for release today, traders should be vigilant as these figures could significantly impact market sentiment and the outlook for both the dollar and euro.
From the original
FUNDAMENTAL OVERVIEW USD: The US dollar regained some ground this week as US and Iran rejected the respective war-ending proposals and US inflation data came out higher than expected. Overall, the market remains rangebound as traders continue to wait for new developments before p
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4 itemsEUR/USD remains rangebound amid the prolonged US-Iran stalemate and widely expected hikes
The desk maintains a cautious outlook on EUR/USD, anticipating continued rangebound trading amid geopolitical tensions and central bank policy uncertainty. Per the full note [source], the US dollar has found some support as US-Iran negotiations stall, while the Fed's shift away from an easing bias is underscored by resilient economic data. With the market pricing in an 84% chance of a June rate hike from the ECB, the euro faces headwinds despite the potential for inflationary pressures to influence Fed policy. Upcoming US CPI data could serve as a catalyst for volatility in the pair.
AUD/USD remains stuck in a range as RBA signals a pause and US-Iran stalemate extends
The desk sees AUD/USD remaining rangebound as geopolitical tensions and central bank signals create a cautious environment. Per the full note [source], the US dollar has gained support amid escalating tensions in the Strait of Hormuz, while the RBA's recent pause in rate hikes has left the Australian dollar vulnerable. With the Fed's shift away from an easing bias and the RBA's more neutral stance, the market is positioned for potential volatility as economic data releases loom. Upcoming US data, particularly the NFP report, could serve as a catalyst for movement in the pair.
USD/JPY remains stuck in a tight range amid US-Iran deal optimism and hawkish Fed risk
Indian Rupee sinks to new record lows and consolidates: US-Iran remains the main driver
The Indian Rupee (INR) is under significant pressure, reaching new record lows against the US Dollar (USD) as geopolitical tensions and oil prices weigh heavily on its value. Per the full note from Giuseppe Dellamotta at investinglive.com, the lack of progress in US-Iran negotiations and rising oil prices have exacerbated the Rupee's decline. The desk believes that the INR's trajectory will remain closely tied to developments in the oil market and geopolitical stability, with a bearish structural trend evident in the currency's performance. Upcoming US economic data, particularly retail sales and jobless claims, could further influence USD strength and INR weakness.
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