FX Daily: Dollar can recover some ground – if data allows
The desk anticipates a potential recovery in the dollar, contingent on upcoming U.S. economic data, particularly labor market indicators. Per the full note, a recent round of JPY intervention has alleviated some downward pressure on the dollar's value, contributing to a more balanced speculative positioning compared to the previous week. As soft data could necessitate a dovish repricing from the Fed, the current expectation is that only robust reports, especially concerning payrolls, will substantiate any further dollar weakening. Thus, trading desks should closely monitor the JOLTS report and upcoming ADP figures as pivotal catalysts in this short-term narrative.
What the desk is arguing
The desk frames this as a crucial moment for the dollar, poised for recovery if labor market data supports it. With JPY intervention having momentarily stabilized market sentiment, the dollar's speculative positioning appears healthier, easing concerns about excessive overbought conditions observed in earlier reports.
The commentary underscores that current net-long positioning in the dollar stands at around 26% of open interest in major currencies, a notably high figure since 2019, which suggests that traders are re-evaluating their positions amid mixed macroeconomic signals. This week’s focus on job openings and payrolls can either reinforce the dollar’s strength or prompt further selling depending on the outcomes.
Where it sits in our coverage
Our consensus target for EUR/USD is currently set at 1.1700, with a range between 1.1200 and 1.2000. Notable firm targets for Dec-26 include: - bofa: 1.1240 - commerzbank: 1.2200 - deutschebank: 1.2500
This projection suggests that the desk’s view aligns closely with the broader market expectations as reflected in our coverage, sitting comfortably within the mid-lower range of consensus forecasts. Given that the dollar's strength or weakness hinges on payroll outcomes, it could impact broader EUR/USD trajectories as well.
How other firms see it
Most firms, such as goldman and morganstanley, appear to forecast slight dollar depreciation in line with expected softening employment numbers. Conversely, deutschebank and commerzbank seem to hold a more bullish outlook for the dollar against the euro, indicating differing perspectives on future dollar strength.
Traders should also consider the potential correlation with other pairs like NZD/USD, where central bank policies and employment figures can influence perceptions of dollar resilience against the Antipodeans, especially in light of upcoming RBNZ rate decisions.
How firms align with this view
Key takeaways
- 01The dollar may recover if upcoming labor market data is favorable, specifically from the JOLTS and payroll reports.
- 02Recent JPY interventions have eased short-term selling pressure on the dollar, creating a more balanced speculative positioning.
- 03The dollar's trajectory in the near term is largely contingent on U.S. economic data, particularly employment statistics.
- 04Some firms forecast lower dollar values amidst expectations of soft payroll figures, indicating a divided market sentiment.
Market implications
Watch the JOLTS job openings report and Friday's payroll figures closely, as they will likely dictate the dollar's short-term trajectory. A strong performance may solidify bullish sentiment, while disappointing results could reignite bearish positioning against the dollar.
Risks to this view
If ADP and payroll figures reveal significant weakness in job creation, this would compel a reevaluation of dollar strength, potentially leading to a surge in selling pressure. Conversely, any unexpectedly strong labor data could limit downside risks for the dollar.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UBS | Bullish | 1.2000 |
TMGM | Neutral | 1.1450 |
Rabobank | Bearish | 1.1400 |
Articles FX Daily: Dollar can recover some ground – if data allows Published 07:30 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar is trading on firmer footing at the start of this week. With this round of large-scale JPY intervention on the books and a more balanced speculative positioning, a batch of soft US data is needed this week to add more pressure on the greenback. We see room for some USD recovery in the next couple of days Francesco Pesole , Frantisek Taborsky and Chris Turner USD: Some upside risks this week The dollar has found some support at the start of this week.
This round of JPY intervention ( which we analysed in detail here ) may be over, lifting a key source of further downside risk for the dollar for the remainder of this week. Also, the positioning picture for USD is probably more balanced now compared to a week ago. Our calculations based on CFTC figures show aggregate net-long USD speculative positioning vs reported G9 currencies (G10 excluding NOK and SEK) at almost 26% of open interest the day of July’s Fed meeting.
That was slightly above the peaks of January 2025 and April 2024, and the most overbought the dollar had been since May 2019. If position-squaring exacerbated the dollar selloff last week, we think further USD losses from here require a more compelling macro argument. That is, soft data justifying a new round of dovish repricing.
Yesterday, ISM manufacturing surprised on the upside, with strong gains in the employment sub-index. For the rest of the week, focus is shifting firmly to the jobs market. Today, the focus is on JOLTS job openings for June, expected to have slowed to below 7.5m.
Unless ADP tomorrow and, more importantly, payrolls on Friday point to a clearly weakening jobs market (the 80k payroll consensus suggests the opposite), we do not expect the dollar to fall much further in the near term. Uncertainty over the next stage of US-Iran negotiations may also help limit downside pressure on oil prices. Markets may ultimately maintain pricing for a September Fed hike above 50% (currently 65%), and we keep a modest bullish bias on the dollar this week.
Francesco Pesole EUR: Slightly overvalued Our short-term fair value model suggests EUR/USD is modestly overvalued (around 0.5-1%) at current levels. It’s not a very strong directional signal, but does endorse our perception that EUR/USD needs help from a favourable shift in short-term rate differentials (i.e. dovish Fed repricing) to take another leap higher. Our baseline for this week is for EUR/USD to edge back below 1.150 on a more supported USD, but unless US jobs figures come in particularly hot, we don’t see a return to 1.140 in the near term.
Sources & References
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