FX Daily: Euro repriced for fiscal woes
The desk anticipates continued euro weakness driven by fiscal uncertainties linked to French politics, which is causing investors to adjust their positions accordingly. Per the full note from ing-think, the ECB's tightening cycle appears more susceptible to shifts than that of the Fed, putting downward pressure on the EUR/USD pair. Currently trading at 1.1446, the consensus median target across firms shows a range with forecasts between 1.1200 and 1.2000 for March 2026, suggesting a diverse outlook on future euro performance. With no impending high-impact events on the calendar, market dynamics are likely to revolve around sentiment and positioning in equity and bond markets, especially in light of the recent French election outcomes.
What the desk is arguing
The euro's recent depreciation reflects rising concerns over fiscal stability in France, compounded by a potential reassessment of the ECB's monetary policy trajectory. The desk highlights that as investors recalibrate for these fiscal risks, EUR/USD remains pressured, signaling a cautious outlook for the euro against the dollar.
In terms of specific metrics, the DXY dollar index is climbing, attributed in large part to euro weakness, with the index reaching highs not seen this year. The desk emphasizes that expectations for interest rate adjustments are more stable for the Fed than for the ECB, evidenced by a shift where 30bp has been removed from the ECB's anticipated tightening cycle compared to only 13bp for the Fed since late September.
Where it sits in our coverage
Our current consensus for EUR/USD is a median target of 1.1634 with a range from 1.1200 to 1.2000 for December 2026. Notably, socgen has a December target of 1.1400, while rb sees it at 1.2000.
The desk’s outlook diverges from the upper end of the consensus range, leaning towards the more conservative estimates amid growing fiscal concerns in Europe.
How other firms see it
Firms like socgen and nomura share a more optimistic perspective on the euro's potential recovery in the medium term, whereas citi positions itself more conservatively with a target of 1.1300 for March 2026. These differing stances underline the market's divided sentiment regarding the euro's future.
Market inputs such as the ECB's upcoming decisions, alongside evolving fiscal narratives around France, will be closely monitored as they directly correlate with EUR/USD's trajectory.
How firms align with this view
Key takeaways
- 01Euro weakness is primarily driven by heightened fiscal risks from France.
- 02Expectations for ECB tightening are retracting faster than for the Fed, adding downward pressure on EUR/USD.
- 03Current consensus targets for EUR/USD range from 1.1200 to 1.2000, reflecting divided market sentiment.
- 04With no significant calendar events imminent, market focus will remain on investor sentiment and positioning.
Market implications
Market participants should watch for indications from French political developments, particularly how legislative shifts might affect investor confidence in the euro. Key technical levels to observe include the DXY's strength against notable resistance points, such as 102.85.
Risks to this view
A reversal in the desk's bearish outlook could materialize if upcoming fiscal measures from France stabilize the market or if unexpected hawkish signals emerge from the ECB, suggesting renewed tightening momentum.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Citi | Bearish | 1.0850 |
Crédit Agricole | Bearish | 1.1300 |
Deutsche Bank | Neutral | 1.1668 |
Articles FX Daily: Euro repriced for fiscal woes Published 07:50 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Independent euro weakness is the dominant story in FX markets as investors adjust positions for French fiscal risk. With the ECB tightening cycle far more vulnerable to repricing than the Fed's, EUR/USD looks set to remain under pressure. Elsewhere, Brazilian asset markets are expected to rally today after Sunday's election results Chris Turner , Frantisek Taborsky and Francesco Pesole French fiscal risk is demanding a weaker euro USD: Dollar holds gains DXY dollar index is pushing smartly to new highs of the year.
It is being propelled by the sell-off in the euro, which represents 58% of the DXY basket. 102.85 would seem to be the next upside target here. Friday's softish September jobs data failed to materially dent prospects for the dollar. Instead, it seems the market is pretty comfortable pricing in unchanged Fed policy at the late October meeting and then a hike at the December meeting.
In terms of how this week will play out for short-dated US rates, the focus will probably be on today's ISM services data and then the release of the FOMC minutes on Wednesday evening. Both look positive for the dollar, with the latter providing some colour on why so many Fed members were forecasting a second Fed hike this year in their Dot Plot submissions. Core support for the dollar should continue to come from the fact that expectations for the monetary policy tightening cycle remain far more resilient for the Fed than for overseas central banks – especially the ECB.
Since late September, 30bp has been removed from the ECB's expected tightening cycle compared to just 13bp for the Fed. Chris Turner EUR: Catching a falling knife All eyes will remain on French debt this week. Whether last week's sell-off prompts a more fiscally supportive stance from either the right or left in French politics remains to be seen, but for the time being it looks like investors will steer clear of French debt.
And presumably there will be intense focus on whether last week's French budget submission makes any progress in a deeply divided parliament. EUR/USD broke lower in Asia overnight on broad euro selling. The big declines in EUR/CHF and EUR/GBP point to a larger risk premium going into the euro on the back of these fiscal woes.
This is something my colleague Francesco Pesole warned about last Thursday . We stick with our 1.1100/1120 EUR/USD target for the time being, with the risk of an extension to the 1.10 area. The eurozone data calendar is pretty light this week, but focus today will be on ECB comments emerging from a monetary policy conference in Frankfurt.
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