FX Daily: One test down, four to go
At a Glance
The desk interprets the recent FX Daily report as a significant indicator of a dovish shift in Federal Reserve policy, following a weak jobs report, which may weigh on the USD in the run-up to upcoming inflation data. As per the full note, the weak -20k print in payrolls was compounded by over 100k downward revisions, contributing to a forecast for a 0.1% month-on-month CPI reading that aligns with the dovish narrative. With several tests ahead, including the CPI release, the potential for USD downside appears dominant, particularly against the JPY, which may be recovering from recent shorts. The current spot for EUR/USD stands at 1.1419, suggesting a cautious outlook amidst these developments.
Key Takeaways
- 01Weak payrolls suggest a dovish Fed, with USD downside risks now prevalent.
- 02July CPI is expected at 0.1% MoM, further supporting bearish USD sentiment.
- 03The current spot for EUR/USD is 1.1419, indicating cautious trading around upcoming data.
- 04JPY may experience upward momentum as it recovers from intervention-related positions.
Full Analysis
What the desk is arguing
The desk posits that the recent dovish signals from the Fed are indicative of further USD weakness, especially with the upcoming CPI release expected to reinforce this sentiment. Per the full note, the weak payrolls report is viewed as the first of five tests leading to the September FOMC, with a consensus forecast of July CPI at 0.1% MoM, below prior expectations of 0.2%.
The labor market data diverts attention to shrinking payroll increases, revealing average growth at just 20k over the past three months, which poses risks for economic robustness. This dovish lean might favor the JPY, poised to recover from intervention-induced positioning issues.
Where it sits in our coverage
Our consensus target for EUR/USD is 1.1583, with a range spanning from 1.1200 to 1.2000 as of December 2026. Notable targets include goldman at 1.1800 and morganstanley at 1.2000, reflecting optimism in certain segments.
This view generally aligns with broader cross-firm expectations, yet it leans toward the mid-range of forecasts, indicating some divergence in sentiments about USD weakness based on current economic signals.
How other firms see it
Several firms, including goldman and morganstanley, are aligned with a bullish EUR/USD stance, anticipating further appreciation. On the contrary, dansebank foresees targets more conservative, reflecting skepticism towards the forecasted shifts with its lower projections.
As these dynamics unfold, watch for corresponding movements in USD/JPY as well, with the trajectory likely influenced by both U.S. CPI data and the Bank of Japan’s policy stance.
Market Implications
Focus on the upcoming CPI release on Wednesday, as it could guide USD movements, particularly against the JPY and EUR. A reading at or below expectations should sustain the bearish momentum for the dollar.
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: One test down, four to go Published 07:51 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Friday's weak payrolls report delivered the first dovish signal in our five-test countdown to the September FOMC. Wednesday’s CPI is
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