Global FX: EUR-USD divergences, systematic signals, sterling struggles

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.