FX Daily: Risk assets rally, central banks in focus
At a Glance
The desk envisions a bullish outlook for risk assets driven by geopolitical developments, coupled with a vital week for central bank policy. As the confirmation of a ceasefire between the US and Iran led to a rally in risk assets globally, the consequent cooling in energy prices and softening of the dollar suggests a short-term bullish bias. Per the full note by ing-think, the upcoming FOMC meeting on Wednesday will play a critical role in tempering potential dollar downside, as markets anticipate a firm stance from Fed Chair Kevin Warsh. With seven G10 central banks gathering this week, including notable events in the US, UK, and beyond, we foresee heightened focus on inflation management strategies, particularly following recent inflationary trends.
Key Takeaways
- 01The confirmation of a US-Iran ceasefire has bolstered risk assets while alleviating pressure on the dollar.
- 02Central banks are in focus this week, especially with the FOMC meeting anticipated to set the tone for inflation management.
- 03Market expectations are tilted towards a less dovish Fed narrative under Chair Kevin Warsh, potentially influencing dollar dynamics.
- 04There is a significant variation in firm projections for EUR/USD, suggesting divergent views on risk and inflation outcomes moving into 2026.
Full Analysis
What the desk is arguing
The desk posits that the recent ceasefire has created a conducive environment for risk assets, which could limit any significant downside for the dollar in the short term. As noted in the source, the reopening of the Strait of Hormuz is a key factor in the drop of energy prices, marking a shift back to early March levels, and contributing to the recent positivity in the equities market.
Our analysis ties this move to the imminent central bank meetings, particularly the Federal Reserve’s, which could pivot market sentiment based on the communicated stance on inflation and growth. The sharper focus on short end yields reveals the market's concerns about inflation management in the wake of the energy price spike seen earlier this year.
Where it sits in our coverage
Our internal consensus for EUR/USD stands at 1.1567, with a median target of 1.1700 ranging from 1.1200 to 1.2000 by mid-2026. Notably, deutschebank places its Dec-26 projection at 1.2500, while mufg targets 1.2400 for the same tenor.
This desk view aligns moderately with market projections, sitting close to the lower end of this spread. The consensus suggests a careful wait-and-see approach, particularly in light of significant central bank communications this week.
How other firms see it
A cohort of firms, including barclays and bofa, align with a similar bullish view on risk assets, driven primarily by easing energy prices and growing demand for equities. In contrast, firms such as uob and cibc are more cautious, anticipating potential headwinds from inflation management policies.
The trajectory of EUR/USD will be closely influenced by developments not only from the Fed but also from the ECB's monetary policy stance, which could pivot based on Eurozone inflation trends, potentially affecting broader market sentiment towards the euro.
Market Implications
Traders should monitor resistance levels around 1.1700 in EUR/USD, aligning with broader central bank narratives. Upcoming developments from the FOMC could trigger movements in risk perception, particularly impacting the dollar’s positioning against major currencies.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2027 |
|---|---|---|
Goldman Sachs | Bearish | 1.1200 |
UOB | Neutral | 1.1450 |
Citi | Bearish | 1.1000 |
From the original
Articles FX Daily: Risk assets rally, central banks in focus 07:55 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Confirmation of a ceasefire has seen risk assets rally, while energy, interest rates and the dollar have fallen. Assuming the US-Iran
Related speeches
4 itemsFX Daily: FOMC minutes can reinforce dollar floor
The desk views the upcoming release of the FOMC minutes as a significant catalyst for reinforcing the dollar's bullish momentum, particularly in a context where geopolitical risks such as US-Iran tensions are not garnering strong market attention. Per the full note, the FOMC minutes are expected to emphasize a hawkish stance by the Federal Reserve, which should provide support for the dollar across key pairs like EUR/USD and GBP/USD. Given that current market positioning reflects a strong belief in further tightening, a hawkish signal will likely consolidate this outlook. This aligns with wider consensus forecasts pointing to a firmer dollar, even as the current spot rates for major pairs remain below long-term targets.
FX Daily: Kevin Warsh holds the keys to dollar resilience
The desk underscores that the resilience of the dollar is currently tethered to market expectations regarding Federal Reserve monetary policy, particularly in the wake of the new Chair Kevin Warsh's first meeting. Per the full note from ing-think, while the dollar has shown some strength, risks are increasingly tilted to the downside should the Fed's messaging diverge from prevailing market expectations. The influential role of the Fed's communication becomes crucial, especially with market anticipations pricing in a mere 21bps of tightening by December, considering both the recent dovish sentiment and the implications of the US-Iran deal that places further downward pressure on energy prices.