FX Daily: Dollar soft, US policy in spotlight
At a Glance
The desk sees the US dollar opening the week on a weak note, driven by market expectations surrounding upcoming US policy announcements. Per the full note from ing-think, the week presents significant events, including a speech from Treasury Secretary Scott Bessent on fiscal consolidation and fresh sanctions on Iran, both of which could exacerbate existing dollar weakness. Concurrently, there's a noted long-squeeze in USD positioning, reflecting traders' hesitancy to fully commit to bearish dollar bets just yet. In the context of our internal coverage, while the consensus views the dollar’s decline as potentially temporary, the looming policy decisions serve as key catalysts for market sentiment.
Key Takeaways
- 01The US dollar is currently experiencing weakness, opening the week close to recent lows.
- 02Market focus is on impending US policy news that could influence dollar movements, particularly related to fiscal consolidation and sanctions.
- 03The potential for a continued squeeze on long USD positions highlights market caution despite prevailing bearish sentiment.
- 04Consensus targets across major currency pairs reflect a hesitation to completely abandon bullish dollar scenarios.
Full Analysis
What the desk is arguing
The desk frames the current market condition as an opportunity for a continued weakening of the US dollar due to upcoming policy updates from the White House. With the dollar already near recent lows, any aggressive shifts in US trade policy or fiscal strategies are likely to amplify downward pressures. Per the full note, developments surrounding sanctions on Iran particularly intrigue, as they may have implications for US-China trade relations, which would further complicate the dollar's trajectory.
Supporting this view is the awareness of the USD's vulnerability, with the market showing interest in more pro-risk sentiment compared to previous periods. The long-squeeze dynamics suggest that while traders are cautious, there is significant room for further dollar weakness if bearish sentiment gains traction. Recent positioning shows a cautious yet critical state of market sentiment, indicating we have not yet seen the bottom for the dollar.
Where it sits in our coverage
Currently, the EUR/USD is trading around 1.1679, with a median consensus target of 1.1700 by March 2026. Notably, firms have spread targets for this pair ranging from 1.1200 to 1.2000, reflecting diverse market expectations: - anz: 1.1609 - morganstanley: 1.2000 - commerzbank: 1.1900 - goldman: 1.1800
This stance aligns closely with a broader consensus that observes gradual weakening in the dollar. Particularly, ubs and scotiabank also echo the sentiment that the dollar may face substantial headwinds moving forward.
How other firms see it
There is a split sentiment among market participants regarding the dollar's trajectory. Aligned firms such as morganstanley and commerzbank point towards dollar weakening aligned with risk-on attitudes, while contrary perspectives from citi and goldman suggest the potential for stability at certain levels. This divergence highlights broader uncertainty in future dollar movements.
Given these dynamics, monitoring the EUR/USD trajectory in conjunction with the ECB's stance and updates on US Treasury yields will be crucial as they intersect with upcoming fiscal signals and risk-integrating policies.
Market Implications
Traders should monitor the immediate impacts of Treasury Secretary Scott Bessent's policy announcements, particularly focused on sanctions regarding Iran, as they could create significant shifts in trading volumes. Additionally, keeping an eye on the EUR/USD as it nears consensus targets could signal further trends.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bullish | 1.1800 |
ING | Neutral | 1.1700 |
Rabobank | Bullish | 1.1800 |
From the original
Articles FX Daily: Dollar soft, US policy in spotlight Published 05:50 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar opens the week on a soft footing as the market awaits fresh policy updates from the White House. These include 'econom
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