FX Daily: Dollar shrugs off oil sell-off
At a Glance
The desk sees the dollar's recent strength as underpinned by solid fundamentals, particularly the outlook from the Federal Reserve, despite a significant drop in oil prices. Per the full note from ing-think, tomorrow's FOMC is outlined as a pivotal point for FX markets, potentially laying the groundwork for a shift in monetary policy. Data trends show a resilience in the dollar, reversing nearly all weekend losses and reflecting a pivot away from energy prices toward central bank dynamics. This strengthens the case for dollar resilience, especially as tightening expectations gain traction from economic data rather than solely energy pricing.
Key Takeaways
- 01Dollar demonstrates strength despite declining oil prices.
- 02FOMC meeting expected to influence future dollar direction.
- 03Market sentiment shifting focus from energy prices to central bank policies.
Full Analysis
What the desk is arguing
The desk frames this as a key moment for the dollar as it continues to rally, exhibiting strong fundamental backing despite lower oil prices. The focus has shifted from crude markets back to the actions and signals from central banks, especially in light of the upcoming FOMC meeting.
Recent performance indicates that almost all losses from the weekend have been reversed, suggesting a growing confidence in dollar strength. The expectation of rate hikes from the Fed, supported by strong economic data, is becoming the primary driver for dollar valuation.
Where it sits in our coverage
The current consensus for EUR/USD is 1.1700 with a range of 1.1200 to 1.2000. Specific targets from notable firms include: - danskebank: Dec-26 target of 1.1200 - hsbc: Dec-26 target of 1.1800 - mufg: Dec-26 target of 1.2400
The desk's bullish sentiment towards the dollar and the focus on the Fed's upcoming decision aligns with broader market expectations, although our targets are generally positioned at a higher level compared to some firms like danskebank and uob, whose targets indicate more caution.
How other firms see it
Firms such as hsbc and mufg show alignment with the desk's optimistic stance on the dollar’s trajectory, bolstered by expectations of continued Fed tightening. Conversely, firms like danskebank hold a less aggressive view, reflecting caution around dollar strength.
This evolving dollar narrative may also feed into the broader dynamics seen in USD/JPY, where changes in Fed policy could significantly impact JPY valuations in the near term.
Market Implications
Traders should monitor the dollar's reaction around the FOMC meeting, particularly if hawkish signals from the Fed emerge. Key levels to watch on EUR/USD include 1.1700, which could act as a critical line of support.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
BNP Paribas | Bearish | 1.1500 |
UBS | Bullish | 1.1800 |
UOB | Bullish | 1.1800 |
From the original
Articles FX Daily: Dollar shrugs off oil sell-off 07:49 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar is rallying again, displaying strong fundamental backing (data, Fed) despite sharply lower oil prices. Tomorrow’s FOMC is looki
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