EUR/USD Price Forecast: Likely find direction after Fed's policy announcement
EUR/USD is treading water at 1.1500 ahead of the Fed's policy announcement, with the market seeking direction from the central bank's rate decision and dot plot. The pair has been range-bound as traders weigh expectations of a potential hawkish hold against softer US data. Fxstreet.com notes that the Fed meeting is the key catalyst, and our own analysis suggests the near-term direction hinges on whether the dot plot signals a longer pause or cuts. The divergence between our consensus 1.22 year-end target and spot at 1.15 underscores the uncertainty, but the Fed's tone could either reinforce or upend the bullish EUR narrative.
Where it sits in our coverage
Our consensus EUR/USD target for Dec26 stands at 1.2200 (median across 8 firms), with Goldman Sachs and Deutsche Bank at the upper bound (1.2500) and Morgan Stanley at the lower (1.1600). The headline's view that the Fed meeting will dictate direction aligns with the broad range of forecasts – the 1.1500 spot is 3.87% below our consensus, leaving room for a rally if the Fed delivers a dovish surprise. However, the dispersion of firm targets (from 1.16 to 1.25) shows no uniform view, reinforcing the binary nature of this week's event.
How firms align
Banks with the highest Dec26 targets – Goldman (1.25), Deutsche Bank (1.25), and MUFG (1.24) – would see the Fed as a catalyst to push EUR/USD higher, consistent with their bullish stance. In contrast, Morgan Stanley's below-consensus 1.16 target implies they expect the Fed to maintain a hawkish tilt, keeping EUR capped. Barclays and BofA, with Dec26 targets of 1.21 and 1.22 respectively, sit near the consensus and are more neutral on the event's outcome.
What the data shows
Our published research, 'EUR/USD Consensus at 1.22 While Spot Sits 3.87% Below' (slug: /research/eurusd-consensus-divergence-may-2026), highlights the disconnect between market pricing and forecasts. This divergence suggests directional risk is skewed to the upside if the Fed signals cuts later this year, but a hawkish hold could deepen the gap and push spot toward the lower end of our consensus range.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01EUR/USD at 1.1500 awaits Fed decision; our consensus Dec26 target is 1.2200, suggesting upside potential.
- 02Fed's dot plot and tone are the key catalysts – a dovish hold could trigger a break above 1.1600 resistance.
- 03Morgan Stanley's bearish 1.16 Dec26 target is the main contrary view; a hawkish Fed would validate that stance.
- 04The 3.87% gap between spot and consensus is a positioning signal – large short covering could amplify a bullish move.
Market implications
Watch the 1.1500 level for a breakout – a close above 1.1520 post-Fed would target 1.1600, while a break below 1.1480 opens 1.1400. Our consensus Dec26 target of 1.2200 is the medium-term reference, but near-term direction hinges on the Fed's stance. Positioning data will be key to confirm whether speculators are leaning against EUR upside.
Risks to this view
A hawkish Fed that raises rate cut expectations or signals a longer hold could push EUR/USD below 1.1400, invalidating the bullish consensus. Geopolitical or trade disruptions (e.g., Eurozone energy shocks) would also pressure EUR. If the Fed delivers a dovish hold but fails to trigger a sustained rally above 1.1600, the market may reprice the consensus lower.
Sources & References
How we cover this story
Other coverage on this pair
EUR/USD strengthens as mixed US labor data and hopes for a US-Iran deal pressure the Greenback.
Soft US labor print reduces Fed rate-hike conviction; geopolitical risk-off from Iran talks risk-off flows weaken USD safe-haven demand.
EUR/USD: Recovery eyes full retracement – Scotiabank
EUR/USD recovery momentum suggests technicians are positioning for mean reversion toward recent highs, indicating potential USD weakness into resistance.
EUR/USD: Binary path around Gulf deal – ING
EUR/USD: Oil shock, real rates and conflict risks – Commerzbank
Oil shock transmission via real rates and geopolitical premium widens USD carry advantage; EUR structural support erodes as terminal rates diverge.
Cross-firm research
EUR/USD Trades 3.87% Below Consensus: What the Gap Reveals
EUR/USD spot at 1.1727 sits 3.87% below the eight-firm median Dec-26 target of 1.22, exposing a structural divergence that demands explanation.
EUR/USD Consensus at 1.22 While Spot Sits 3.87% Below
Eight sell-side firms hold a median Dec-26 target of 1.22 for EUR/USD while spot trades at 1.1727, a gap that demands explanation.