UBS On-Air: Paul Donovan Daily Audio '“Substantial progress”'
At a Glance
The desk's view is that substantial progress in US-China trade talks may herald a cautious easing of trade tariffs, which would ease previous trade pressures on currency valuations. As UBS's Paul Donovan notes, the discussions have attracted attention and could signal a willingness from the US to reduce the current tariff levels that are constraining trade growth. The consensus across firms shows a general expectation around 1.1700 for EUR/USD, indicating a mix of confidence and caution in the Eurozone amidst these developments.
Key Takeaways
- 01US-China trade talks are progressing, potentially easing tariffs
- 02Current consensus for EUR/USD sits at 1.1700
- 03UBS sets a more optimistic target at 1.2000 for December 2026
- 04Expect mixed reactions among firms based on outlooks for Eurozone economic recovery
Full Analysis
What the desk is arguing
The desk interprets the US-China trade negotiations, highlighted by Treasury Secretary Bessent's comments on substantial progress, as a potential turning point that could influence currency valuations significantly. Per the full note, investors are mainly focused on how effectively the US will retreat from tariffs that have hindered bilateral trade.
The desk points out the current tariffs are unsustainable at their existing levels, with reductions needed to stimulate trade flows. Donovan notes that even a hypothetical reduction to 80% would still render trade largely ineffective, suggesting significant relief is required to restore normal economic activity.
Where it sits in our coverage
In terms of FX targets, consensus for EUR/USD stands at 1.1700 with a range of 1.1200 to 1.2000. Notable firm targets include ubs aiming for 1.2000 and jpmorgan at 1.1800 for December 2026.
While our view aligns with the upper bound of the range, it diverges from firms such as citi, which has a more conservative target of 1.1300 for the same period, reflecting a more cautious approach to the Eurozone economy in light of trade uncertainties.
How other firms see it
Several firms are aligned with our perspective, emphasizing the importance of trade developments. Firms like hsbc and scotiabank reflect confidence in a recovery in EUR/USD, with targets around 1.1734 and above. Conversely, firms such as deutschebank and citi present a more cautious stance, positioning their targets towards the lower end of the consensus range.
Related markets to monitor alongside EUR/USD are GBP/USD and USD/JPY, both of which may experience spillover effects based on the evolving trade dynamics and potential shifts in monetary policy reflecting tariffs resolution.
What the calendar says
There are no high-impact economic events scheduled in the coming weeks that might significantly alter market sentiment regarding trade developments, requiring traders to remain attentive to news flows and updates from ongoing US-China negotiations.
Market Implications
Watch for developments around trade negotiations, particularly any official statements or adjustments to tariff rates that could alter the USD's strength. The EUR/USD trading range stands tightly around the 1.1700 mark, making frequent testing of this level critical in the near-term.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bullish | 1.1800 |
ING | Neutral | 1.1700 |
Rabobank | Bullish | 1.1800 |
From the original
Sino-US talks over the weekend were described by US Treasury Secretary Bessent as making “substantial progress” on trade. Presumably so important a comment was cleared by US President Trump. The only real issue investors care about is how far the US will retreat on trade taxes. C
Related speeches
4 itemsUBS On-Air: Paul Donovan Daily Audio 'Taking down the trade temperature'
The desk posits that recent signs of easing trade tensions between the U.S. and China, as indicated by Treasury Secretary Bessent’s comments on an impending meeting between Presidents Trump and Xi, are boosting market sentiment. This outlook proposes a potential reduction in trade hostility which could stabilize the USD against key currencies like the EUR and GBP. Per the full note [source], current projections suggest a more favorable trading environment, pushing traders to consider opportunities in U.S. dollar pairs. With UBS setting a robust consensus target for EUR/USD at 1.20 by December 2026, the market is bracing for supportive data ahead.
UBS On-Air: Paul Donovan Daily Audio 'Less tense?'
The desk views the recent easing of trade tensions between the US and China as a positive development for market sentiment and certain currency pairs, notably the USD. Per the full note from UBS, trade negotiations are reportedly moving to a 'dial down' phase, with significant tariffs on Chinese goods being re-evaluated ahead of a key meeting between Presidents Trump and Xi. This sentiment is underscored by the prospect of China potentially resuming purchases of US soybeans, a noteworthy change in trade dynamics that could buoy USD strength against other currencies. Given that there are no immediate calendar catalysts, traders may find potential in capturing volatility around real-time trade updates and political communications.
More from UBS ON AIR
5 items- UBS ON AIR
UBS On-Air: Paul Donovan Daily Audio 'D-day or Light Brigade?'
- UBS ON AIR
UBS On-Air: Paul Donovan Daily Audio 'Canada, Iran, and US affordability'
- UBS ON AIR
Signal over Noise: Navigating Scylla and Charybdis at Jackson Hole
- UBS ON AIR
Top of the Morning: CIO Equity Pulse - Monthly performance update & outlook