FX Daily: EUR/USD gears up for a 1.10 test
The desk sees EUR/USD poised to confront the significant psychological threshold of 1.10, supported by the dollar's strong rally resulting from shifts in rate expectations following recent hawkish statements from the Federal Reserve. Per the full note from ing-think, the Fed's rhetoric, coupled with stronger-than-expected inflation data, lends credence to ongoing dollar strength, making a rebound in EUR/USD challenging. Current market conditions suggest that unless economic data unexpectedly favors the euro, a test of this key level is imminent. Notably, our internal consensus target for EUR/USD currently stands at 1.1400, within a range of 1.1000 to 1.2000, indicating a divergence from recent price action while setting a framework for readers to consider positioning ahead of potential volatility.
What the desk is arguing
The desk holds that EUR/USD is likely to test the 1.10 mark due to burgeoning support for the dollar from recent hawkish Fed signaling and positive inflation prints. According to the commentary, if upcoming data continues to favor the dollar, this testing could solidify the dollar's rebound.
Underpinning this assessment is the move in short-term rates, with DXY rising to levels last seen in April 2025, suggesting that current dynamics are predominantly driven by rate differentials. Importantly, the desk notes that excessive dollar strength remains only relative to the euro and SEK, hinting at a more robust dollar environment overall.
Where it sits in our coverage
Our consensus target for EUR/USD stands at 1.1400, with specific Dec-26 targets from notable firms as follows: - Investec: 1.1700 - RBC: 1.2000 - HSBC: 1.1000
This perspective aligns with the upper boundary of our range (1.1000–1.2000), suggesting a cautious bullish outlook on the euro relative to current market positioning.
How other firms see it
A spectrum of views exists across firms: those aligned, such as Nomura and Commerzbank, advocate for higher euro targets (approaching or exceeding 1.1700), while BofA presents a more subdued stance, with a Dec-26 target of 1.1500.
The dynamics at play for EUR/USD parallel sentiments in other pairs like USD/JPY, as the adjustment in Fed rate expectations continues to drive broader FX movements, highlighting the interconnected nature of these markets.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01EUR/USD approaching the critical threshold of 1.10 driven by dollar strength.
- 02Recent hawkish Fed communication is a pivotal driver of dollar momentum.
- 03The consensus target for EUR/USD remains at 1.1400, indicating a bullish outlook compared to current levels.
- 04Potential for further dollar appreciation amid key data releases in the coming week.
Market implications
Watch for the 1.10 level in EUR/USD as a critical point of resistance; a break could signal further dollar strength. The upcoming economic data, specifically home sales, may offer insight into future dollar pricing and could influence positioning strategies considerably.
Risks to this view
Key risks to this outlook include unexpected weaker inflation data or a shift in Fed communication towards a more dovish stance, which could derail dollar momentum and allow for a stronger rebound in EUR/USD. Additionally, geopolitical events or shifts in market sentiment towards risk assets could also pose challenges.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
MUFG | Neutral | 1.1200 |
UniCredit | Bullish | 1.1600 |
Rabobank | Bearish | 1.1000 |
Articles FX Daily: EUR/USD gears up for a 1.10 test Published 07:40 FX Translate Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar’s strong rally this week is firmly rooted in a shift in short-term rate dynamics, driven by hawkish Fed rhetoric and hotter inflation. That makes it harder to argue for a material rebound in EUR/USD, which may instead test 1.10 should upcoming data releases offer the dollar extra support. For now, we don’t see the conditions for a break below 1.10 Frantisek Taborsky , Francesco Pesole and Chris Turner EUR/USD could test 1.10 if upcoming data provides further support for the dollar USD: Hawkish skew ahead The combination of hawkish Fedspeak and a US CPI beat earlier this week continues to pay dividends for the dollar.
DXY is now back at Liberation Day (April 2025) levels, with real front-end rate differentials continuing to fuel strong dollar momentum. Importantly, this remains a rates-driven move, with contained excessive USD strength relative to short-term fair value currently built in. In our estimates, stretched undervaluation vs USD is only visible against the euro, consistent with the French-related premium, and SEK, which tends to underperform fundamentals during hawkish repricing as both an activity currency and a low yielder.
This environment is also preventing high-beta currencies from drawing any benefits from the extension of the equity rebound. The resilience to both Nvidia’s idiosyncratic losses and the repricing higher in interest rates is sending a rather strong signal of solidity in the AI trade at the moment. We continue to see upside risks for the dollar in the coming days.
The Fed's Chris Waller has put a 50bp December move on the radar, and that should keep markets biased towards hawkish interpretations of incoming data. December pricing remains at 28bp, leaving scope for further adjustment. Today’s home sales data are unlikely to matter, but tomorrow’s PPI will.
That may be the catalyst for another USD leg higher. Francesco Pesole EUR: ECB members unlikely to match Fedspeak If, on the other side of the Atlantic, Chris Waller – previously considered dovish-leaning – opened the door to larger hikes, in the eurozone a hawkish-leaning voice, Gabriel Makhlouf, called for greater caution on tightening yesterday, stressing price pressures remain contained to energy for now. That contrast neatly captures the current EUR/USD story.
The pair's two-year swap rate differential has widened by around 15bp over the past five sessions, and we think the scope for further repricing is greater in front-end USD rates than EUR rates in the near term. That leaves EUR/USD at material risk of testing 1.100 in the coming days. We expect that level to offer relatively solid support, not least because the pair is already trading at a nearly 2% discount to our short-term fair value.
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