FX Daily: Looming payrolls can keep FX volatility in check
The desk anticipates that the imminent US payroll report will suppress FX volatility, particularly as improved sentiment in the Gulf weakens the dollar. Per the full note from ING, traders are likely adopting a wait-and-see approach ahead of payrolls, which adds to the dollar's subdued movement. Key data shows that while Brent crude prices fell significantly, US rate expectations have remained stable with a consistent 14-17 basis points priced in for September. This context may steer investments toward higher-beta currencies, effectively keeping G10 moves in check until the employment numbers are released.
What the desk is arguing
The desk posits that the upcoming US payrolls report is likely to keep FX volatility muted, particularly for the dollar, which appears weak amidst improved Gulf market sentiment. This scenario supports a wait-and-see strategy ahead of a notoriously unpredictable data release. Per the full note from ING, such cautious sentiment is evident in the foreign exchange markets this week.
The stable expectations for Fed rate hikes, with 14-17 basis points priced for September and 30-35 basis points for December, indicate a market more focused on economic data than external factors such as energy prices. This was highlighted by the mixed performance of prior data, including a soft ADP payroll print and lower-than-expected ISM services numbers which reflect potential downside risks for the upcoming payrolls report.
Where it sits in our coverage
Our consensus sits at 1.1583 for EUR/USD, with a range spanning from 1.1200 to 1.2000. Notable targets include: - Goldman: Dec-26 target at 1.1200 - Morgan Stanley: Dec-26 target at 1.1600 - Deutsche Bank: Dec-26 target at 1.2500
This view is in line with our cross-firm consensus, although it holds slightly above the median target. The market dynamics indicate strong fragmentation among firm projections, with targets varying throughout the range.
How other firms see it
A number of firms, including Goldman and Morgan Stanley, project significantly lower targets for Dec-26, indicating a more cautious sentiment regarding the EUR/USD outlook. In contrast, Deutsche Bank appears to foresee a stronger EUR with higher targets. The divergence amongst firm projections illustrates the uncertainty surrounding key data releases, especially the upcoming payroll figures.
The EUR/USD trajectory is significantly influenced by the anticipated US payrolls report, which could provide clarity regarding future Fed policy and impact broader FX trends.
How firms align with this view
Key takeaways
- 01Imminent US payroll report is likely to keep FX volatility muted, particularly for the dollar.
- 02Stable Fed rate expectations, coupled with soft economic data, are contributing to cautious market sentiment.
- 03Gulf market sentiment weakens the dollar while supporting higher-beta currencies.
- 04Price movements among G10 currencies remain limited ahead of payrolls, indicating a wait-and-see approach.
Market implications
Traders should closely monitor the performance of EUR/USD around the 1.1583 level, especially leading into the payroll release tomorrow. This report is a potential catalyst which may prompt shifts in positioning and recalibrate risk sentiment across the FX landscape.
Risks to this view
A notably better-than-expected payroll number could prompt a hawkish reassessment of Fed rate expectations, significantly stronger dollar gains, and invalidate the current cautious positioning in the FX market. Conversely, a poor print could exacerbate dollar weakness, in line with prevailing market sentiment.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bullish | 1.1565 |
Bank of America | Bearish | 1.1200 |
UBS | Bullish | 1.2000 |
Articles FX Daily: Looming payrolls can keep FX volatility in check Published 08:00 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Improved market sentiment in the Gulf has lent the dollar some weakness, but the greenback is still counting on very stable Fed rate expectations. The proximity to tomorrow’s US payrolls could favour a wait-and-see approach and limit FX moves today. In Sweden, hotter core inflation this morning isn’t enough to change our call for no hikes this year Francesco Pesole , Frantisek Taborsky and Chris Turner In Sweden, hotter core inflation this morning isn’t enough to change our call for no hikes this year USD: Wait-and-see mood can dominate today News of a deal between Iran and Oman to open a safe shipping route in the Strait of Hormuz has kept the FX market in risk-on mode, favouring a rotation from the dollar to higher-beta currencies.
Even so, G10 moves have been contained this week, likely because tomorrow’s US payrolls report remains the key catalyst and a notoriously difficult one to predict. That caution is evident in rate pricing. Expectations for upcoming Fed meetings are little changed since July’s announcement, with 14-17bp consistently priced for September and 30-35bp for December.
This has come during a week in which Brent fell $15/bbl: a clear testament that US rate expectations are currently being driven far more by data and Fed communication than by energy prices. On the latter, Daly, Cook and Kashkari all delivered some hawkish-leaning comments yesterday. Speaking of data, ADP payrolls came in a bit soft at 44k and ISM services rose less than expected to 54.1 yesterday.
The services employment subindex plummeted to 47.5, which – according to our macro team – points to some mild downside risks for tomorrow’s payrolls. Markets are also waiting for the next headlines on US-Iran negotiations. There appears to be little pessimism left in FX markets, and positive headlines on that topic may not generate sustainable USD weakness.
With payrolls looming tomorrow, a wait-and-see stance may keep volatility contained and the dollar broadly range-bound. Francesco Pesole EUR: Well supported EUR/USD has been retesting the 1.1550-1.1560 resistance area, supported by a softer dollar and the solid defence of 1.1500 earlier this week. Still, we do not see a fundamental catalyst for a break higher unless US data disappoint tomorrow.
As discussed above, the decline in oil prices is not feeding through to lower US front-end rates, leaving economic data as the key driver needed to sustain further gains in the pair. With no real input from the eurozone, we are neutral on EUR/USD today. The pair can stabilise in the 1.1530-1.1550 area ahead of tomorrow’s US payrolls report.
Sources & References
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