FX Daily: Dollar consolidates recent gains
The desk maintains a cautiously optimistic view on the dollar, anticipating that it will continue to find support on dips amid a backdrop of improved risk asset stability, particularly in the tech sector. Per the full note source, the current environment is seen as conducive for the dollar, especially ahead of key US pricing data and monetary policy discussions. The upcoming CPI and PPI data releases will be critical in determining market sentiment towards the Federal Reserve's trajectory, particularly following last week's strong labor market indicators. Current positioning shows a consensus building around a more hawkish Fed, indicating potential dollar gains amidst potential for sustained risk asset consolidation.
What the desk is arguing
The desk believes that the dollar is likely to consolidate its recent gains on the back of both favorable recent labor data and a likely transition to a less dovish stance from the Federal Reserve. As observed, the recent bounce back in tech stocks, especially from the Korean chipmakers which have seen performance variation due to leveraged ETFs, appears to distract from the broader cyclical story shaped by Fed policy expectations.
Forecasts have begun positioning for firmer US inflation readings, with the market focusing on upcoming CPI and PPI prints. Notably, traders will closely monitor the NFIB small business optimism and weekly ADP jobs data as early indicators that could set the tone ahead of the Fed meeting.
Where it sits in our coverage
In terms of our internal metrics, the dollar's overall momentum is underscored by a consensus target for the EUR/USD trading at 1.1700 (range 1.1200–1.2000) and the GBP/USD at 1.3400 (range 1.2400–1.3800) for March 2026. Specific firm targets include: - Commerzbank: EUR/USD at 1.1900 - Barclays: GBP/USD at 1.3500 - JPMorgan: GBP/USD at 1.3700
While the current dollar positioning reflects alignment with broader market expectations, it’s important to note that BNPParibas is positioned at the lower end of the range with a GBP/USD target of 1.3400, reflecting potential divergence in views.
How other firms see it
Aligned views can be seen among firms such as CreditAgricole, Barclays, and JPMorgan, which all suggest a bullish bias towards the dollar, particularly against the EUR and GBP pairs. Conversely, firms like Citi and BNPParibas are expressing more caution, reflecting a more bearish outlook on the dollar.
Traders should be particularly attentive to the developments in the EUR/USD and GBP/USD pairs, as fluctuations here are likely to mirror the prevailing risk sentiment played out through inflation data and Fed positioning.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The dollar is expected to consolidate recent gains supported by positive risk sentiment.
- 02Focus will shift to upcoming US CPI data and potential Fed policy shifts.
- 03The current EUR/USD consensus sits at 1.1700, indicating room for potential dollar strength.
- 04Positioning through leveraged ETFs in tech is adding volatility but distraction from core FX narratives.
Market implications
Traders should focus on the 1.1700 mark for EUR/USD, as a sustained breach might indicate increasing dollar strength. Additionally, the May CPI release on the 10th will serve as a key indicator of inflation trends that could inform Fed policy.
Risks to this view
A reversal in the dollar's strength could occur should the CPI data fall significantly below consensus expectations, undermining the hawkish narrative. Moreover, stronger-than-expected relief in tech markets could shift risk appetite away from safe-haven flows benefiting the dollar.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Bank of America | Bearish | 1.1200 |
ANZ | Bearish | 1.1400 |
UOB | Bullish | 1.1565 |
Articles FX Daily: Dollar consolidates recent gains 07:50 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download It has been a mildly better 24 hours for risk assets, with tech stocks showing a little more stability and the Asian currency complex lifted by stronger trade data in China. Expect more consolidation today given very little data and the blackout period ahead of the ECB and Fed meetings. Expect the dollar to remain supported on dips Chris Turner , Frantisek Taborsky and Francesco Pesole The dollar should remain supported on dips USD: More consolidation The good news for investors is that Friday's sell-off in tech stocks saw little follow-through selling yesterday.
And overnight, some of those stocks which led the sell-off, such as the Korean chipmakers, have bounced back strongly. It does seem the creation of leveraged ETFs on these Korean chipmakers has added to volatility, including these leveraged products falling even when the underlying stocks they are tracking are rising. The volatility of tech stocks, however, looks to be a distraction to the dominant cyclical story in FX markets, which is the potential for the Fed to tighten policy.
Last week was all about the strength of the US labour market and this week the market will be focused on US price data. This starts with tomorrow's May CPI and is followed by PPI on Thursday. The market looks positioned for some firm data here and a far less dovish FOMC meeting in a week's time.
Today's focus is on the NFIB small business optimism data, the weekly ADP jobs data and the April trade balance. On the subject of trade, China released another healthy set of trade data overnight , which is lending some support to the renminbi and the Asian currency complex in general. On a related subject, the US Treasury market should take note of likely FX intervention across a large swathe of Asia and what it means for US Treasury sales.
Fed custody holdings data show another $71bn decline in foreign official holdings of Treasuries since the start of May – which will add further pressure to the market. DXY is consolidating after a strong rally on Friday, and we would expect it to find support around the 99.80 area before another look at the upside later this week. Chris Turner EUR: Holding pattern ahead of US CPI and ECB The slightly better risk environment is taking some steam out of the dollar's rally and is helping EUR/USD to correct some of Friday's heavy losses. 1.1500 now looks like important support, and the top of a short-term trading range may well prove the 1.1555/60 area if the bullish dollar theme is to remain dominant.
We have just seen some German industrial production for April , which has proved marginally better than expected. However, our eurozone macro team warn that activity could take a turn for the worse over the coming months once this precautionary inventory building has run its course. Thursday's ECB meeting could present some upside risks for EUR/USD – but we will need to get through US CPI data first.
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