EUR/USD: EU policy risks and weaker German sentiment – BNY
EUR/USD faces headwinds from deteriorating German economic sentiment and EU policy risks, according to BNY. The composite sentiment scoring tilts bearish for EUR and bullish for USD, reflecting the market's growing concern over political uncertainty in the eurozone. With spot at 1.1500, the pair is trading well below our consensus targets, suggesting that the bearish view is already priced in to some extent. However, BNY's framing adds context to the downside risks, particularly as German sentiment weakens and EU policy challenges mount. This matters because it reinforces the near-term bearish bias, but the divergence between spot and consensus suggests potential for a reversal if sentiment improves or ECB policy provides support.
Where it sits in our coverage
Our consensus EUR/USD target for Mar26 is 1.1800 (median across 8 firms), with Morgan Stanley at the upper bound (1.2000) and BofA/Barclays at the lower (1.1700). BNY's view aligns more closely with the lower third of the consensus range, as weakening German sentiment and EU policy risks challenge the euro. The current spot at 1.1500 is 2.5% below the consensus, indicating a bearish market positioning that has already overshot relative to firm targets.
How firms align
Among the firms with targets for Mar26, JPMorgan (1.1800), Goldman Sachs (1.1800), and ING (1.1900) sit near the consensus, while BofA (1.1700) and Barclays (1.1700) are more bearish, aligning with BNY's cautious stance. However, no firm explicitly matches BNY's focus on EU policy risks; most rely on broader macro factors. The divergence between the bullish consensus for later maturities (e.g., Jun26 at 1.2050) and near-term bearishness underscores the uncertainty.
What the data shows
Our previous research, '/research/eurusd-consensus-divergence-may-2026', highlighted that EUR/USD consensus for Dec26 is 1.2200 while spot is 3.87% below, suggesting that the market expects a significant recovery. BNY's view challenges that recovery narrative in the near term, but if German sentiment deteriorates further, the timeline for reversion may be pushed out.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01EUR/USD near-term support threatened by weak German sentiment and EU policy risks, per BNY.
- 02Spot at 1.1500 is below consensus Mar26 target of 1.1800, pricing in bearishness already.
- 03Watch for EU policy catalysts (e.g., fiscal or regulatory shifts) that could reverse the bearish sentiment.
- 04Consensus expects recovery to 1.22 by Dec26, but BNY's view questions near-term upside.
Market implications
Focus on German economic data (e.g., ZEW, IFO) and EU policy announcements as key catalysts. A break below 1.1400 could accelerate selling toward 1.1200, while a recovery above 1.1600 would challenge the bearish narrative. Our consensus for Mar26 at 1.1800 remains a medium-term target but near-term risks are tilted to the downside.
Risks to this view
A surprise improvement in German sentiment or a dovish ECB pivot could invalidate the bearish view, driving EUR/USD back toward 1.1700-1.1800. Conversely, an escalation of EU policy risks (e.g., political instability in France or Italy) could push the pair below 1.1300.
Sentiment by currency
USD+EUR-JPY~GBP~Composite USD score: +0.65
Sources & References
How we cover this story
Other coverage on this pair
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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.