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Deutsche Bank

FX Blueprint 2026: The Great Rotation

LIVE12 December 2025USD bearish

Overview Forecasts Trades Currencies Scenarios Technicals Volatility EM Strategy Macro Quant

Macro Scenarios

Name: Investment Bank FX Research Directory
Creator: FX Bank Forecast
License: https://fxbankforecast.com/terms
Keywords: bank FX research, investment bank reports, FX strategy, institutional research directory, bank forecasts

Deutsche Bank EUR/USD scenario analysis and USD macro framework

EUR/USD Fair Value by Scenario

Base case highlighted in red

Rate Spread Sensitivity

Fed-ECB spread vs EUR/USD fair value

Fed vs ECB Rate Assumptions

Central bank rate assumptions across scenarios

Fed ECB

Click a central bank to view full profile

European fiscal failure

1.05

Most bearish scenario. German fiscal plan delayed or diluted, ECB forced to cut deeply while Fed holds.

Fed

ECB

1.5%

Spread

-2.5bp

Gradual convergence

1.15

Slow fiscal implementation, gradual Fed easing. EUR gains modest.

Fed

3.5%

ECB

Spread

-1.5bp

Base case: Great Rotation

1.22

Capital rotation + German fiscal delivery. EUR/USD pushes to 1.22 by mid-year.

Fed

ECB

Spread

-1bp

Full rotation + fiscal boost

1.28

Capital rotation accelerates, fiscal multipliers exceed expectations. EUR/USD 1.25-1.28.

Fed

ECB

2.5%

Spread

-0.5bp

US recession + full rotation

1.35

Bull case. US recession + full fiscal delivery + capital rotation cascade. EUR/USD to 1.35.

Fed

1.5%

ECB

Spread

0.5bp

USD Macro Scenario Matrix

Growth x Inflation framework for the dollar

RecessionSoft

Very Bearish → Great Rotation accelerates

US recession turbocharges the Great Rotation. Capital outflows from US assets become a torrent. EUR/USD could overshoot 1.35. JPY rallies sharply to 130s. EM suffers initially but recovers as USD weakens.

Carry: Carry devastated short-term, recovers fast

RecessionFirm

Bearish → stagflation amplifies USD bear

Worst-case for US assets. Stagflation undermines both the equity and bond pillars of USD support. Gold, CHF, JPY outperform massively. EM differentiates sharply.

Carry: Carry collapses

Jobless growthSoft

Bearish → Great Rotation base case

Base case for the Great Rotation. Capital gradually shifts to Europe and Asia as US growth normalizes. EUR/USD reaches 1.25, USD/JPY 143. Scandis and EM outperform.

Carry: Carry delivers strong returns

Jobless growthFirm

Modestly Bearish → Fed constrained

Fed held higher by inflation but twin deficits still weigh. Rotation continues at slower pace. EUR range 1.18-1.22. JPY still appreciates on BoJ normalization.

Carry: Selective carry works

Jobs growth re-emergingSoft

Neutral → competing forces

Strong US growth partially offsets structural USD bearishness. Rotation slows but doesn't reverse. EUR/USD stabilizes 1.15-1.20. Risk-on supports EM and commodity FX.

Carry: Carry outperforms

Jobs growth re-emergingFirm

Modestly Bullish → only scenario USD rallies

Only scenario where USD strength returns. Strong growth + firm inflation keeps Fed hawkish. But structural twin deficit headwinds limit gains to 3-5%.

Carry: Carry outperforms cross-sectionally

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