FX Daily: Looking for stabilisation
The desk interprets current market dynamics as a moment of stabilization for the euro, anticipating a potential rebound against a strong dollar. Per the full note, this calm in risk sentiment could allow EUR/USD to maintain levels above 1.130. In light of expected US data, particularly the core PCE, the path forward suggests a bearish USD potential, with the market pricing in a quasi-dovish Fed stance for December. Recent consensus reflects a broad range for EUR/USD targets, indicating a divided outlook among leading firms.
What the desk is arguing
The desk believes the euro is positioned for stabilization against the dollar due to recent reductions in risk sentiment. Per the full note, if sentiment continues to improve, we can expect fundamental data and Fedspeak to drive currency movements.
Today's releases, particularly personal income and core PCE figures, are critical. The desk anticipates core PCE could print at 0.2% MoM, slightly below expectations, reinforcing the notion that aggressive Fed hawkishness might already be priced into the market.
Our baseline view circumscribes the EUR/USD from breaching below 1.130, suggesting that a sustained decline in the dollar may be forthcoming if these data points align favorably for the euro.
Where it sits in our coverage
Currently, the consensus target for EUR/USD is 1.1700, with a range from 1.1200 to 1.2000. Specific targets from notable firms include: - citi: Dec-26 target at 1.1200 - deutschebank: Dec-26 target at 1.2500 - ubs: Dec-26 target at 1.2000 With our view aligning closely with the upper end of market expectations, the desk is optimistic but remains cautious.
How other firms see it
A significant number of firms, including goldman and mufg, express bullish views on the euro, anticipating targets around 1.1800 to 1.2600. Conversely, citi holds a more conservative outlook, eyeing an upper target of only 1.1300 for the same period.
For related currency movements, keep an eye on risk sentiment indicators and the dollar index as both will impact EUR/USD volatility directly, particularly in response to upcoming economic data releases.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The euro is likely to stabilize against the strong dollar.
- 02Core PCE data may print lower than expected, affecting the Fed's hawkish stance.
- 03Market consensus for EUR/USD reflects a range from 1.1200 to 1.2000.
- 04Fedspeak today could influence perceptions of future rate hikes.
Market implications
Watch for EUR/USD to hold above 1.130, especially if today's core PCE comes in at 0.2% or lower. A breakthrough in the euro's momentum could shift targeting higher towards consensus levels around 1.1700.
Risks to this view
If the core PCE data significantly exceeds expectations at 0.3% or higher, this could lead to renewed dollar strength and a tougher outlook for the euro, potentially validating bearish views held by firms like **citi**.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bullish | 1.1800 |
ING | Neutral | 1.1700 |
Rabobank | Bullish | 1.1800 |
Articles FX Daily: Looking for stabilisation 07:32 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Calmer markets are allowing several currencies to take a breather against the strong dollar. If sentiment keeps stabilising from here, data and Fedspeak should take over as primary drivers. Today, we expect decent US spending figures, but a muted core PCE.
Our baseline view is that EUR/USD won’t break below 1.130 Frantisek Taborsky , Francesco Pesole and Chris Turner Calmer markets are allowing several currencies to take a breather against the strong dollar USD: Core PCE may come in cooler than expected The dollar seems to have halted its run on some risk sentiment stabilisation, but it’s still early to rule out another leg higher in the greenback. Any new signs of AI jitters could be the catalyst for more safe-haven-related dollar demand. At the same time, our baseline view remains that we are not far from the peak in this dollar rally.
This risk correction has shaved around 7bp off the Fed pricing for December, which is now 35bp. It’s a potential sign that the bar for a dovish repricing may not be that high. Our economists still expect no hikes by the Fed this year, which backs our bearish USD call for 2H.
Today, the US data calendar picks up again. Personal income figures for May are expected to come in at a robust 0.6% on the back of good retail sales data. However, the savings rate may keep dropping closer to all-time lows – a sign of growing stress for some consumers.
The other main release is the Fed's preferred measure of inflation, the core PCE deflator. Expectations are for 0.3% MoM, but we see risks tilted to a 0.2% print. That wouldn’t be enough to sustainably invert the USD’s momentum, but it could help build some resistance to more aggressive hawkish repricing in the swap curve.
Fedspeak also remains quite closely watched. Today, Bowman and Williams are due to speak. The former is arguably the most dovish FOMC member after Miran’s departure, and Williams is also a dovish-leaning voice.
We could hear some pushback against aggressive expectations as they probably belong to the half of FOMC members who forecasted no hikes this year. Francesco Pesole EUR: Looking for firmer ground EUR/USD is stabilising after a long sell-off, with AI-related sentiment now being the primary driver of the pair. Further stabilisation in equities could see a slow return to 1.140.
Domestically, the German IFO printed above consensus yesterday, offsetting Tuesday’s poor PMIs, but markets have continued to gradually scale back some ECB easing. This was in line with the move in the USD curve and a spillover from the equity turmoil, as ECB speakers have so far offered a more hawkish tone relative to Lagarde’s Monday speech. Our baseline view is that EUR/USD won’t break below 1.130, but that is contingent on risk sentiment continuing to stabilise.
Sources & References
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