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 |
|---|---|---|
Scotiabank | Bearish | 1.1200 |
Commerzbank | Bullish | 1.2200 |
UBS | Bullish | 1.2000 |
All 30 desk targets for EUR/USD
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.
In the eurozone, the second release of 2Q GDP will be released today, with no expectations for meaningful changes to the advance 0.4% quarter-on-quarter print. Francesco Pesole JPY: BoJ policy story having little effect so far Despite some sharp moves in Japanese money markets this week, the yen is failing to find any lasting support. Here, the big story is that the Japanese government might be more tolerant of a faster tightening cycle by the Bank of Japan.
The prior assumption had been that a government focusing on growth would only allow the BoJ one hike every six months. The suggestion now is that Tokyo has elevated FX as a policy priority and wants to ensure that the first joint intervention with the US to buy the yen since 1998 is a success. Markets now price close to a 75% chance that the BoJ hikes 25bp in September.
That has seen two-year US:Japan swap differentials narrow nearly 40bp since mid-July. That should be weighing on USD/JPY. The fact that it is not may owe to benign conditions that continue to favour the yen-funded carry trade.
That said, the risks to funding in yen are squarely increasing, and if we are right with our call for unchanged Fed rates in September, USD/JPY could well be trading back below 158. And to play independent yen strength in the interim, expect a lot more focus on short CHF/JPY positions. Chris Turner CEE: Central bank signals take centre stage Turkey’s central bank raised its inflation forecast to 28% from 26%, bringing it closer to market expectations and our own forecast.
It also signalled that the effective policy stance is likely to normalise as funding shifts from the overnight lending facility back to the repo window. We had expected this move in September, but the case for an earlier shift in August has strengthened. Today, Turkey will publish August inflation expectations, which have risen somewhat since the start of the US-Iran conflict.
Elsewhere, Romania releases 2Q GDP figures today, though yesterday’s press conference by the National Bank of Romania governor was the main focus. While the central bank lifted its year-end inflation forecast to 6.1%, the governor said discussions on rate cuts could begin early next year. This matches our forecast, but the firm signal may still surprise markets.
In the Czech Republic, the Czech National Bank will publish minutes from last week’s meeting, when rates were left unchanged at 3.75%. The minutes may reveal a more dovish discussion than markets expect. The CNB will also release its full inflation report.
Frantisek Taborsky Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Frantisek Taborsky EMEA FX & FI Strategist Frantisek is an FX & FI Strategist covering EMEA markets, having joined the bank in 2022.
He provides short- and medium-term recommendations for ING's corporate and institutional client… Francesco Pesole FX Strategist Francesco is an FX Strategist and has been with the firm since May 2019. His main focus is on the G10 space and, in particular, on European and commodity currencies. He began his career at Credit… Chris Turner Global Head of Markets and Regional Head of Research for UK & CEE Chris is Global Head of Markets and Regional Head of Research for UK & CEE.
Together with his team, he provides short and medium-term FX recommendations for ING's corporate and… In this article USD: Looking for a shift in Fedspeak EUR: Showing some undervaluation JPY: BoJ policy story having little effect so far CEE: Central bank signals take centre stage
Sources & References
How we cover this story
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