Global FX: EUR-USD divergences, systematic signals, sterling struggles
At a Glance
The FX desk is adopting a more bullish outlook on the dollar as diverging economic data strengthens the case for a stronger USD against the EUR. This shift comes on the heels of recent macroeconomic indicators that signal a slowdown in the Eurozone while the U.S. economy shows resilience. Consensus expectations remain generally supportive of the euro, but the disparity is stark as several firms adjust their projections closer to the desk's new view. Market participants should prepare for potential volatility as traders weigh whether to side with the bullish sentiment or bet against it.
Key Takeaways
- 01J.P. Morgan's desk shifts to a bullish USD outlook against the EUR.
- 02Economic divergences are driving risk assessments on currency pairs.
- 03Consensus on EUR/USD remains mixed, with several firms adjusting their targets.
Full Analysis
What changed
The FX desk at J.P. Morgan has revised its forecast for the euro against the dollar, increasingly favoring a stronger USD. The main catalyst for this shift is the growing concern over Europe's economic performance, particularly as recent data indicates a slowdown compared to the more robust U.S. figures. This change is articulated in their latest research titled ‘Global FX: EUR-USD divergences, systematic signals, sterling struggles,’ suggesting that a bullish trend for the dollar could hold as we move through 2026.
Furthermore, the analysis from J.P. Morgan captures a sentiment that the uneven recovery post-pandemic, coupled with differing monetary policies, positions the dollar for potential strength. This reevaluation will likely prompt traders to reconsider their positions as they look to capitalize on these divergences in economic outlooks across major developed economies.
What the consensus says
In terms of consensus, the median target for EUR/USD across various firms is projected at 1.1750 for March 2026, with a range that spans from 1.1300 to 1.2000. Notably, J.P. Morgan's revision has brought its target for March in line with the higher end of this range, indicating a more bullish stance compared to the general consensus.
- Goldman Sachs: Dec-26 target at 1.2500, maintaining a bullish outlook.
- Morgan Stanley: Dec-26 target at 1.1600, indicating a cautious approach.
- Deutsche Bank: Dec-26 target at 1.2500, aligned with a positive view of the euro.
Who's with them, who's not
Firms that align closely with J.P. Morgan include Goldman Sachs, Deutsche Bank, and MUFG, all maintaining bullish projections for EUR/USD into late 2026. Conversely, firms like Citi, Bofa, and Morgan Stanley are leaning more bearish, with targets suggesting potential weaknesses in the euro against the dollar moving forward. As traders assess the market, the key question remains whether to follow the dollar strength narrative or to take a contrarian approach — the trade-vs-fade question rests on which sentiment dominates: the broader bullish outlook or the caution from those predicting a euro recovery.
Market Implications
Investors should watch closely for U.S. economic data releases, particularly those relating to inflation and employment, which could further bolster dollar strength. The key level for EUR/USD to monitor is 1.1500; a sustained breach below this level may prompt further shifts in positioning.
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
Meera Chandan, Patrick Locke and Antonin Delair discuss why the top-down view is becoming more supportive of the dollar, new forecast profile for EUR/USD, systematic signal take-aways for FX and GBP follow-through from political developments. This podcast was recorded on 15 May 2
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