FX Daily: Time to think about the midterms?
At a Glance
The desk is positioning for potential downside risks in the US dollar due to heightened political uncertainty leading up to the US midterms, alongside supportive developments from the ECB for the euro's strength. Per the full note , the ECB's clear message on a likely December rate hike strengthens the euro as it approaches today’s Q3 GDP release. Concurrently, algorithm-driven fluctuations in tech stocks and a 68% chance of a Democratic sweep may prompt a precautionary unwinding of USD long positions, exacerbating bearish sentiment. This backdrop comes with robust US economic data reinforcing Fed vigilance, maintaining pressure on dollar gains against broad market tentativeness.
Key Takeaways
- 01Upcoming US midterm elections pose downside risks for the dollar.
- 02ECB signals likelihood of a December rate hike supporting euro strength.
- 03Precautionary unwinding of long USD positions seen ahead of elections.
- 04Strong US economic data complicates bullish USD outlook.
Full Analysis
What the desk is arguing
The desk cautions that the upcoming US midterms present significant downside risks for the dollar, especially as investor sentiment shifts. According to the commentary, the potential for a Democratic sweep is trading at approximately 68% in prediction markets, which could heighten concerns around government gridlock and its implications for fiscal policy.
Supporting this view is recent US data, including a Q3 growth rate of 3.4%—slightly above consensus—and core PCE at 0.3% MoM. This suggests that while the Fed remains hawkish, trader positioning heading into the elections may alter dollar dynamics ahead of the FOMC blackout period ending today.
Where it sits in our coverage
For the euro, our consensus currently stands at 1.1253, with a range forecast extending from 1.1162 to 1.2000 through December 2026. Specific firm targets include rabobank at 1.1800, investec at 1.1700, and cibc at 1.2200 by the same date.
This aligns with a wide-ranging consensus, where forecasts tend to hover around the mid to upper band of these targets, suggesting potential room for further euro appreciation depending on the outcome of the midterm elections.
How other firms see it
A majority of firms echo the desk's sentiment, with rabobank, rbc, and mizuho anticipating euro strength aligning with ECB policy. However, firms like citi and nomura remain cautious, projecting lower targets for EUR performance.
The anticipated trajectory of the EUR/USD could also intersect with the evolving stance of the Fed and its implications for USD/JPY dynamics, especially considering the ongoing qualitative shifts in AI sector sentiment impacting both markets.
Market Implications
Traders should remain vigilant around EUR/USD movements, particularly targeting levels above 1.13 in the wake of election outcomes. Additionally, the closely watched 3Q GDP report could pivot sentiment in the currency markets based on its reception by analysts.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Rabobank | Bearish | 1.1000 |
ING | Bullish | 1.1300 |
MUFG | Neutral | 1.1200 |
From the original
Articles FX Daily: Time to think about the midterms? Published 07:39 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The ECB sent a clear message yesterday: a December hike is likely. That is providing a more supportive backdrop for the euro ahead
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