FX Daily: High bar for a dollar correction
At a Glance
The desk suggests that the dollar's downtrends are likely transient, as underlined by persistent hawkishness from the Fed and fragile bond markets. Per the full note from ING, current economic indicators signal limited potential for a drastic dollar correction, with Treasuries reflecting a temporary pause in bearish activity. The desk retains a moderately bullish outlook for the dollar in the near term, bolstered by this underlying environment and expectations for a rate hike in December. Meanwhile, the widening spread in forecasts for currencies like the EUR/USD, currently at 1.1253, reflects varied sentiment among firms regarding the euro's potential resilience against the dollar.
Key Takeaways
- 01The dollar is expected to face only limited downward pressure despite recent fluctuations.
- 02A hawkish Fed narrative persists, suggesting a December rate hike is on the horizon.
- 03Market sentiment remains fragile, particularly within the bond market.
- 04EUR/USD projections widely diverge across firms, indicating uncertainty about the euro's performance.
Full Analysis
What the desk is arguing
The desk maintains that the conditions for a significant dollar correction appear challenging, particularly as the Fed's hawkish communications instill confidence in future rate hikes. This perspective is consistent with findings from the source commentary, which highlights that a combination of fragile market sentiment and inflation expectations contribute to sustained support for the dollar.
Recent data trends, like inflation expectations hinted by the University of Michigan surveys and potential Fed commentary, suggest that the dollar could continue to find footing. For instance, the commentary notes that the dollar's recent declines are expected to remain shallow, particularly with solid support from U.S. Treasuries.
Where it sits in our coverage
Our consensus target for EUR/USD stands at 1.1700, with a range between 1.1200 to 1.2000. Notably, rabobank has a Dec-26 target of 1.1800, while bofa is more conservative at 1.1500.
The desk's view aligns closely with the prevailing consensus, particularly at the upper bounds of projections from firms like socgen at 1.2000 and cibc at 1.2200. This positioning underscores a relatively optimistic outlook for the dollar despite its recent ebbs.
How other firms see it
Aligned firms generally echo the desk's perspective, with expectations leaning towards a moderately stronger dollar. The outlook from firms such as rabobank and mizuho shows agreement on potential bullishness for the dollar.
Conversely, contrary views exist among firms like hsbc, which show a much more subdued view on dollar strength particularly in relation to the JPY, where they target much lower levels ahead. The upcoming University of Michigan sentiment release will also likely impact perceptions in USD/EUR and consequently the market narrative regarding a tighter Fed stance.
Market Implications
Focus on how near-term data, especially from the University of Michigan, may influence dollar valuations, particularly against the EUR/USD level of 1.1253. A sustained dollar improvement could be underscored if inflation expectations indeed rise.
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: High bar for a dollar correction Published 07:40 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Dollar drops may continue to prove short-lived and quite small in size as bond markets remain fragile and the Fed narrative hawkish.
Related speeches
4 itemsFX Daily: Hawkish Fed minutes keep dollar supported
The desk maintains a bullish outlook on the dollar following the hawkish September FOMC minutes, which indicate a near-term policy rate hike is anticipated by year-end. The expectation of further tightening in response to persistent inflationary pressures, alongside robust Treasury demand, underpins this stance. Per the full note, elevated U.S. Treasury yields are likely to keep the dollar supported, despite recent volatility. This backdrop contrasts with fragile sentiment in European markets, particularly in the EUR/USD and EUR/GBP pairs.
FX Daily: Dollar resilience builds
The desk maintains a bullish view on the dollar's resilience, driven predominantly by hawkish signals from the Federal Reserve amidst falling oil prices. Per the full note from ing-think, this environment suggests limited downside for USD, especially against the EUR as market participants remain anchored to Fed hike expectations. Recent labor market data supports expectations for a strong payroll print, further solidifying the dollar's strength. Our current consensus for EUR/USD sits at 1.1684, indicating a cautious outlook on eurozone monetary policy amid these developments.