FX Daily: EUR/USD starting to look cheap
The desk sees EUR/USD as entering a buying opportunity as recent models suggest it is starting to appear undervalued. Per the full note from the bank's FX Daily, the prevailing summer trading conditions post-CPI have subdued FX volatility, keeping EUR/USD largely stable. While expectations for further Federal Reserve tightening seem overstated, the desk remains moderately bullish, anticipating a weaker dollar amid shifting Fedspeak dynamics. Traders should keep an eye on upcoming data releases as potential catalysts to validate this stance.
What the desk is arguing
The desk frames this as an opportunity for EUR/USD buyers, suggesting the pair is beginning to look cheap given current valuation metrics. Some short-term undervaluation signals are emerging, supporting a moderately bullish bias for the coming weeks as implied by recent models.
Additionally, the recent CPI data has contributed to a general sense of dollar fatigue, leading the desk to expect a weaker dollar in the face of overstated market tightening expectations from the Fed. Observations from members of the FOMC, like Beth Hammack advocating for further hikes and Tom Barkin expressing more caution, introduce a level of uncertainty heading into the Jackson Hole Symposium later this month.
Where it sits in our coverage
Our consensus target for EUR/USD is 1.1600 with a range of 1.1200 to 1.2000 as seen across various firms. Notably, jpmorgan projects a target of 1.1800 for March 2026, while goldman sees it at 1.1800 for the same tenor, with other firms like investec suggesting a more conservative target of 1.1455 for the same period.
This stance aligns closely with consensus expectations, as most firms are targeting similar levels around or above the current spot of 1.1419, positioning the desk's view near the midpoint of this range.
How other firms see it
Firms like goldman and morganstanley express agreement with a slightly bullish perspective on EUR/USD, projecting targets around 1.1800. In contrast, firms such as bofa set a more cautious tone with lower targets of about 1.1240.
Moreover, developments in USD/JPY will be instrumental in discerning the nature of dollar movement, particularly given the interconnected implications of FOMC policy and recent inflation perceptions that feed into the broader dollar narrative.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01EUR/USD is showing signs of undervaluation according to recent bank models.
- 02The dollar's bullish narrative is being challenged with an expectation of weakness amid over-optimistic Fed tightening forecasts.
- 03Market dynamics will be influenced by FOMC communications heading into the Jackson Hole Symposium.
- 04Current consensus targets for EUR/USD range around 1.1600, aligning with the desk's moderately bullish outlook.
Market implications
Watch for EUR/USD to potentially push above 1.1450 in the coming weeks, especially with today's upcoming retail sales data acting as a catalyst. A notable deviation in these figures might reinforce the desk's bullish outlook as well.
Risks to this view
A reversal could occur if Fedspeak post-Jackson Hole indicates a stronger commitment to further tightening than currently anticipated. Unexpectedly hawkish commentary before the symposium could also validate dollar strength, undermining the bullish case for EUR/USD.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 1.1140 |
ABN AMRO | Bullish | 1.1500 |
Bank of America | Bullish | 1.1500 |
Articles FX Daily: EUR/USD starting to look cheap Published 07:12 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Post-CPI summer trading conditions continue to keep FX volatility subdued, leaving EUR/USD largely anchored. Still, our models are pointing to some short-term undervaluation in the pair, supporting our moderately bullish bias for coming weeks. Gulf headlines remain a marginal factor for FX, more visible in some relative value trades than USD crosses Frantisek Taborsky , Francesco Pesole and Chris Turner We see scope for a weaker dollar as expectations of further Fed tightening look overstated USD: Looking for a shift in Fedspeak The post-CPI midsummer environment is understandably weighing on FX vols.
We argued yesterday , that this could remain the norm for at least the next couple of weeks. At the same time, we retain a preference for dollar downside, as we still believe market conviction around further tightening by the Federal Reserve is too strong. For now, Fedspeak offers the clearest potential catalyst for market moves.
There is still considerable uncertainty over the message that could emerge from the late-August Jackson Hole Symposium, particularly after a CPI report that leaned dovish without delivering a definitive signal. Yesterday, we heard from Beth Hammack, who voted for a hike and continued to make the case for tightening, but also from Tom Barkin, who raised some doubts about the need for higher rates despite not being considered a dovish voice within the FOMC. Let’s see if more centrist members start to soften their hawkish tone.
Today’s US calendar includes July retail sales, expected at a modest 0.1% month-on-month, and the University of Michigan surveys, which are expected to show little change from August. These second-tier releases would likely need to deliver significant surprises to trigger a meaningful dollar reaction. Meanwhile, headline fatigue surrounding the Middle East remains elevated.
US-Iran negotiations appear to be at a stalemate, but Brent declined yesterday, providing some support for global bonds. The bar for the dollar to rebuild a strong direct relationship with oil prices remains quite high, and the impact of developments in the Gulf may remain more visible in G10 relative-value trades, where pairs such as NOK/SEK and AUD/NZD continue to track the energy story quite closely. Francesco Pesole EUR: Showing some undervaluation Our models suggest EUR/USD’s short-term fair value sits in the 1.160-1.1650 area.
That’s primarily on the back of the c.10bp tightening in two-year swap rate spreads, which retain a significantly higher beta than other drivers. That supports our positive bias on EUR/USD, even though we aren’t convinced a break above 1.160 is on the cards in the coming days unless communication from the Fed starts to surprise on the dovish side. For now, EUR/USD bulls like us may be content with strengthening technical support around 1.1500.
Sources & References
How we cover this story
Related news on this pair
Euro struggles as French fiscal concerns and firm US Dollar dominate
French fiscal deterioration coupled with USD strength narrows EUR/USD support; monitor French bond spreads for contagion risk to broader eurozone credit.
EUR/USD Weekly Forecast: US Dollar persistent demand hints at a test of 1.1000
Persistent USD demand signals potential EUR/USD downside to 1.1000, suggesting dollar strength may be structurally underpinned rather than tactical.
EUR/USD Price Forecast: Rallies fail above 1.1200 amid high Oil prices, debt woes
EUR resistance failure at 1.1200 combined with Eurozone debt concerns suggests structural headwinds for EUR/USD near-term; elevated oil prices add stagflation risk to ECB policy calculus.