FX Daily: Dollar is on a roll
At a Glance
The desk reinforces the bullish sentiment on the dollar as the DXY dollar index approaches 101.80, bolstered by resilient US economic activity that continues to support Fed hawkishness. Per the full note from ing-think, recent softer-than-expected inflation data hasn't significantly altered market expectations for further rate hikes, as evidenced by a quick retracement in short-dated interest rates following the data release. With the upcoming US nonfarm payrolls and other key economic data, the backdrop remains constructive for dollar strength, particularly against the backdrop of weakening performance in EUR/USD.
Key Takeaways
- 01Resilient US economic data supports Fed hawkishness despite soft inflation reports.
- 02DXY dollar index nearing yearly highs illustrates strong demand for the dollar.
- 03EUR/USD is trending lower, facing vulnerability as Fed signals continue to dominate.
- 04Upcoming nonfarm payrolls will be crucial in determining Fed trajectory and dollar strength.
Full Analysis
What the desk is arguing
The desk posits that strong US economic fundamentals are continuing to drive dollar strength, with the DXY index nearing yearly highs. As noted in the source commentary, the Fed's tightening expectations remain firmly anchored despite recent inflation prints, suggesting an ongoing commitment to high interest rates.
Consumer spending reports, alongside positive signals from the ADP payroll growth data, reinforce the view that the Fed may need to explore additional tightening in the near term. This emerging strength contrasts sharply with the vulnerabilities observed in EUR/USD, which is testing lows and remains exposed to further declines.
Where it sits in our coverage
Our consensus target for EUR/USD stands at 1.1700, with a range from 1.1200 to 1.2000. Notably, firms such as socgen and credit suisse have set Dec-26 targets reflecting a bearish outlook for the euro, specifically at 1.1400 and 1.1700 respectively.
The desk's evaluation suggests a more bearish stance on EUR/USD compared to the broader consensus, falling towards the lower end of the prevailing projections. Observations from research articles point towards an anticipated divergence, where the fed's monetary stance appears stronger relative to ECB policies.
How other firms see it
Generally, firms like bofa and nomura align towards a bearish perspective on the USD/EUR spectrum, projecting lower targets for the euro across their forecasts. Counter to this, rbc and anz exhibit more optimistic targets for the euro, believing in potential upward movement relative to the current dollar strength.
This outlook emphasizes the interplay between US economic metrics and the stance taken by the European Central Bank, highlighting that shifts here could significantly impact the trajectory of EUR/USD. The focus remains on key economic indicators that can either fortify the dollar's momentum or challenge its ascent.
What the calendar says
While no imminent high-impact events are slated, all eyes remain on the upcoming nonfarm payroll release. This crucial data point is likely to shape expectations around Fed policy and could steer market movements, particularly concerning EUR/USD dynamics in light of this dollar strength narrative.
Market Implications
Traders should closely monitor levels around 1.14 for EUR/USD as a potential breach could amplify dollar momentum. The impending nonfarm payroll release will act as a significant indicator; strong results may reinforce the bullish dollar stance, while weaker numbers could prompt reconsideration of recent dollar strength.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
MUFG | Bullish | 1.1800 |
Danske Bank | Bearish | 1.1100 |
UBS | Bullish | 1.1800 |
From the original
Articles FX Daily: Dollar is on a roll Published 07:40 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar remains very well bid and the DXY dollar index is close to the highs of the year. Yesterday's softer-than-expected August US PCE infla