FX Daily: EUR/USD starting to look cheap
At a Glance
The desk sees EUR/USD as entering a buying opportunity as recent models suggest it is starting to appear undervalued. Per the full note from the bank's FX Daily, the prevailing summer trading conditions post-CPI have subdued FX volatility, keeping EUR/USD largely stable. While expectations for further Federal Reserve tightening seem overstated, the desk remains moderately bullish, anticipating a weaker dollar amid shifting Fedspeak dynamics. Traders should keep an eye on upcoming data releases as potential catalysts to validate this stance.
Key Takeaways
- 01EUR/USD is showing signs of undervaluation according to recent bank models.
- 02The dollar's bullish narrative is being challenged with an expectation of weakness amid over-optimistic Fed tightening forecasts.
- 03Market dynamics will be influenced by FOMC communications heading into the Jackson Hole Symposium.
- 04Current consensus targets for EUR/USD range around 1.1600, aligning with the desk's moderately bullish outlook.
Full Analysis
What the desk is arguing
The desk frames this as an opportunity for EUR/USD buyers, suggesting the pair is beginning to look cheap given current valuation metrics. Some short-term undervaluation signals are emerging, supporting a moderately bullish bias for the coming weeks as implied by recent models.
Additionally, the recent CPI data has contributed to a general sense of dollar fatigue, leading the desk to expect a weaker dollar in the face of overstated market tightening expectations from the Fed. Observations from members of the FOMC, like Beth Hammack advocating for further hikes and Tom Barkin expressing more caution, introduce a level of uncertainty heading into the Jackson Hole Symposium later this month.
Where it sits in our coverage
Our consensus target for EUR/USD is 1.1600 with a range of 1.1200 to 1.2000 as seen across various firms. Notably, jpmorgan projects a target of 1.1800 for March 2026, while goldman sees it at 1.1800 for the same tenor, with other firms like investec suggesting a more conservative target of 1.1455 for the same period.
This stance aligns closely with consensus expectations, as most firms are targeting similar levels around or above the current spot of 1.1419, positioning the desk's view near the midpoint of this range.
How other firms see it
Firms like goldman and morganstanley express agreement with a slightly bullish perspective on EUR/USD, projecting targets around 1.1800. In contrast, firms such as bofa set a more cautious tone with lower targets of about 1.1240.
Moreover, developments in USD/JPY will be instrumental in discerning the nature of dollar movement, particularly given the interconnected implications of FOMC policy and recent inflation perceptions that feed into the broader dollar narrative.
Market Implications
Watch for EUR/USD to potentially push above 1.1450 in the coming weeks, especially with today's upcoming retail sales data acting as a catalyst. A notable deviation in these figures might reinforce the desk's bullish outlook as well.
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: EUR/USD starting to look cheap Published 07:12 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Post-CPI summer trading conditions continue to keep FX volatility subdued, leaving EUR/USD largely anchored. Still, our models are poi
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