FX Daily: French risk keeps harming ECB hawks
At a Glance
The desk interprets current euro weakness as a reflection of ongoing French fiscal uncertainties, which are undermining ECB hawkish expectations. Per the full note from ing, the euro faces a downside risk for EUR/USD, primarily influenced by volatility in French bonds. With the euro currently trading at 1.1253, further scrutiny on the ECB's rate adjustments is crucial, particularly amid an October CPI release that could influence expectations for US Federal Reserve policy. As we approach these data points, the potential for additional downward pressure on the euro remains notable.
Key Takeaways
- 01Euro remains under pressure due to waning ECB hawkish expectations amid French fiscal uncertainty.
- 02DXY finds support from robust domestic data despite isolated euro weakness.
- 03Upcoming US CPI release could sway market expectations regarding the Fed's December rate hike.
- 04Cross-firm consensus indicates a divergence in forecast targets for EUR/USD amid ongoing volatility.
Full Analysis
What the desk is arguing
The current strength of the dollar juxtaposed with the euro's weakness reflects market concerns regarding the ECB's capacity to maintain a hawkish stance in light of external pressures, particularly from French fiscal developments. Per the full note from ing, this has contributed to an unwind of previous rate hike expectations, jeopardizing the euro's stability.
The recent ISM services index, which recorded a slight dip to 54.9, still signals expansion, suggesting that solid domestic data may buffer the greenback against broader market uncertainties. Market sentiment remains poised for a December rate hike from the Fed as per consensus, reinforcing the dollar's supportive environment amidst European turbulence.
Where it sits in our coverage
Our internal consensus target for EUR/USD is 1.1634 with a range spanning from 1.1200 to 1.2000. Noteworthy forecasts include socgen with a December target of 1.1400 and rabobank projecting 1.1759 for the same tenor.
This viewpoint aligns closely with the lower end of the broader cross-firm consensus. Several firms anticipate a more resilient euro against this backdrop, but the desk's current positioning suggests a more guarded view in light of the risks identified.
How other firms see it
Firms like hsbc and socgen exhibit alignment with potential euro weakness amid similar concerns over ECB policy. Conversely, cibc projects a more optimistic meter, anticipating the euro to trade at 1.2200 in the same period.
The evolving dynamics of EUR/USD will be heavily influenced by the outcome of upcoming central bank decisions, especially developments from the ECB and Fed. Market participants should remain vigilant about the interconnectedness of ECB policy adjustments and the broader implications for the USD strength.
What the calendar says
We currently have no high-impact events scheduled on the calendar for the next 30 days, indicating a gap that may create volatility driven by external risk factors rather than scheduled data releases.
Market Implications
Traders should watch for movement around 1.1200 as a psychological support level for EUR/USD, while monitoring the upcoming US core CPI release on October 14, which is pivotal for Fed sentiment. Additionally, exposure to French bond developments remains critical, as volatility in this market could influence euro trading dynamics.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 1.1140 |
ABN AMRO | Bullish | 1.1500 |
Bank of America | Bullish | 1.1500 |
From the original
Articles FX Daily: French risk keeps harming ECB hawks Published 07:45 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Alongside a direct – albeit so far relatively contained – build-up of fiscal premium, the euro continues to suffer from an unwind
Related speeches
4 itemsFX Daily: Euro repriced for fiscal woes
The desk anticipates continued euro weakness driven by fiscal uncertainties linked to French politics, which is causing investors to adjust their positions accordingly. Per the full note from ing-think, the ECB's tightening cycle appears more susceptible to shifts than that of the Fed, putting downward pressure on the EUR/USD pair. Currently trading at 1.1446, the consensus median target across firms shows a range with forecasts between 1.1200 and 1.2000 for March 2026, suggesting a diverse outlook on future euro performance. With no impending high-impact events on the calendar, market dynamics are likely to revolve around sentiment and positioning in equity and bond markets, especially in light of the recent French election outcomes.
FX Daily: Lagarde lifts some support from the euro
Per the full note [source], the desk sees renewed risks for the euro following dovish comments from ECB President Christine Lagarde. Specifically, Lagarde's remarks are creating vulnerability for the EUR/USD pair, which had previously shown signs of potential recovery. Current conditions in the Gulf, coupled with broader economic concerns, are placing downward pressure on the euro, making its strength less likely amidst rising U.S. rates and geopolitical tensions. With our internal EUR/USD consensus at 1.1700 for March 2026, the desk suggests that maintaining a bearish stance toward the euro could be prudent.