FX Daily: Lagarde lifts some support from the euro
Per the full note , the desk sees renewed risks for the euro following dovish comments from ECB President Christine Lagarde. Specifically, Lagarde's remarks are creating vulnerability for the EUR/USD pair, which had previously shown signs of potential recovery. Current conditions in the Gulf, coupled with broader economic concerns, are placing downward pressure on the euro, making its strength less likely amidst rising U.S. rates and geopolitical tensions. With our internal EUR/USD consensus at 1.1700 for March 2026, the desk suggests that maintaining a bearish stance toward the euro could be prudent.
What the desk is arguing
The desk contends that recent dovish signals from ECB President Christine Lagarde have undermined the euro's strength and tilted EUR/USD risks downward. This realignment of sentiment comes as market conditions, influenced by geopolitical tensions and central bank actions, continue to shape the currency landscape.
The possibility of a continued upside for EUR/USD has been curtailed as pressure from Gulf developments and Lagarde’s dovish tone raises doubts about the eurozone's economic trajectory. Our view is underscored by the persistent strength of the U.S. dollar in the current environment, where rising rates are putting pressure on international assets, including the euro.
Where it sits in our coverage
Our consensus target for EUR/USD is 1.1700, with a range anticipated between 1.1200 and 1.2000 by March 2026. Specific firm targets include: - dhfc: 1.1400 (Mar26) - barclays: 1.1700 (Mar26) - nomura: 1.1700 (Mar26)
The desk's outlook aligns closely with this range, particularly leaning towards the lower bound suggested by llyods at 1.1331 for March 2026, indicating a cautious sentiment around the euro's potential even amidst some optimistic forecasts from other firms.
How other firms see it
Several firms such as hsbc and barclays align with our bearish perspective on the euro, echoing similar forecasts for declines in EUR/USD. However, firms like danskebank appear more optimistic, forecasting stronger performance for the euro.
This euro outlook dovetails with dynamics in other pairs like USD/JPY, influenced heavily by corresponding central bank actions, particularly the Federal Reserve's rate adjustments relative to the Bank of Japan's loose monetary policies.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Lagarde’s dovish statements have weighed on the euro, suggesting further downside risk.
- 02The U.S. dollar remains strong, bolstered by rising interest rates and geopolitical tensions.
- 03Our internal consensus for EUR/USD aligns with concerns raised in the broader market about euro strength.
- 04Current geopolitical conditions serve as a significant factor influencing euro volatility.
Market implications
Traders should monitor the EUR/USD level closely around 1.1700, as any breaking change in U.S. consumer sentiment or geopolitical developments could exacerbate volatility. Significant attention should also be paid to the upcoming U.S. JOLTS report which may influence dollar movements further.
Risks to this view
A stronger-than-expected rebound in eurozone economic data or a shift toward a more hawkish ECB stance could invalidate the current bearish outlook. Additionally, any resolution in geopolitical tensions leading to stabilization in oil prices could undermine the dollar’s growing strength.
AUD/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Citi | Bearish | 0.6700 |
J.P. Morgan | Bullish | 0.6800 |
Crédit Agricole | Bullish | 0.7300 |
Articles FX Daily: Lagarde lifts some support from the euro Published 07:50 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Yesterday, we felt EUR/USD had a good chance of some recovery, but Gulf developments and dovish comments from Christine Lagarde have tilted risks back to the downside. Elsewhere, AUD is under some pressure after the RBA delivered its expected rate hike but revealed it had considered holding rates steady Francesco Pesole and Frantisek Taborsky Dovish remarks by ECB President Christine Lagarde are leaving the euro more vulnerable USD: Focus on consumer confidence and JOLTS today Optimism about any progress in US-Iran negotiations is fading at the start of this week, with Iranian officials reportedly saying a deal is unlikely before the 3 November US midterms. For now, the Trump administration is not budging on key conditions and yesterday refused a proposal by Iran to reopen the Strait of Hormuz.
Brent touched $109/bbl yesterday (now $107), delivering another blow to the bond market. For now, equities have suffered some knock-on effect but are absorbing the shock quite well, but the risks are that high valuations reach a risky tipping point with rates rising so rapidly. It’s a tail risk that is getting fatter, and one that would be associated with big dollar gains.
For now, the greenback is continuing to find support without any big break. Interestingly, the Swiss franc was the worst performing currency alongside NOK and SEK yesterday. While Scandies are generally disfavoured in squeezed liquidity, CHF weakness appears a more structural problem at this stage.
The Swiss National Bank’s dovish surprise last week may be fuelling a preference for playing the hawkish Fed story via USD/CHF as opposed to USD/JPY, where intervention risk remains elevated. An October Fed hike could see the USD/CHF rally extend to 0.84-0.85. Today’s calendar should start to force US data back into the discussion.
September consumer confidence is expected to stabilise around 89. JOLTS will offer more nuance to the August jobs picture. We feel payrolls were too strong last month and will be revised lower on Friday.
We need to see some stability in bonds for the dollar to correct lower. That relies heavily on oil, and the latest news isn’t encouraging. Upside risks are rising again for the greenback.
Francesco Pesole EUR: Surprise dovish tilt by Lagarde The euro held up relatively well yesterday considering the slew of dovish-leaning comments by ECB President Lagarde, which favoured a widening in the SOFR-ESTR 2yr swap to beyond 155bp. We are now not far from the 163bp max width reached in early July. Lagarde seemed willing to tone down some market enthusiasm about an October hike yesterday, saying that tight financial conditions are limiting the pass-through of energy costs to the broader economy.
Sources & References
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