FX Daily: Nervousness continues
The desk maintains a bullish stance on the USD, driven in part by recent volatility in the USD/JPY pair that has raised intervention concerns, as detailed by the recent report from ing-think. Market reactions to the ISM services report, anticipated to remain steady at 54.1, could impact the Fed's outlook on rate hikes, with any notable deviation possibly reinforcing USD strength. Current forward rates suggest continued upward pressure on the dollar, despite modest dips in market expectations surrounding further tightening. As such, we see room for gains relative to currencies with weaker domestic narratives.
What the desk is arguing
The desk frames this as a strategic moment for the USD amid mixed economic signals, particularly following intervention fears from the sharp move in USD/JPY. Per the full note from ing-think, the recent data on US jobs (ADP at 38k) has slightly dampened expectations, but the overall environment supports a bullish USD outlook.
Current market conditions indicate that the Fed's resolve against rate cuts remains firm, especially with rising back-end yields and potential inflationary pressures visible in the global context. This environment suggests that despite some profit-taking in USD positions, the fundamental backing is still strong.
Where it sits in our coverage
Our consensus target for EUR/USD is 1.1700, with a range from 1.1200 to 1.2000, showcasing divergent views among banks such as nomura (targeting 1.2000) and rbc (targeting 1.1700).
This bullish outlook on the USD contrasts with the median expectations, where various institutions like hsbc and ucl are more conservative at 1.1100 and 1.1288 for December 2026, respectively. Our view remains aligned with the higher end of the spectrum.
How other firms see it
Several banks align with our bullish outlook on the dollar, including rbc and nomura, who project higher targets into 2026. Contrarily, firms like stanchart and hsbc suggest cautious positioning, proposing lower targets for the EUR/USD pair, indicating a more subdued view on the dollar's trajectory.
Key pairs like USD/CAD and USD/JPY also provide relevant context, where the reactive nature of USD/JPY to intervention hints at external pressures potentially influencing broader USD sentiment moving forward.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01USD bullishness remains despite mixed labor market signals.
- 02Rising back-end yields continue to support the dollar's upward trajectory.
- 03Intervention risks in USD/JPY represent a volatile sentiment shift.
- 04Upcoming ISM report may serve as a catalyst for market direction.
Market implications
Watch for the upcoming ISM services report; any unexpected results could shift dollar sentiment significantly. The current level of USD/JPY around 161.28 suggests heightened focus on interventions that could either stabilize or further complicate dollar positioning, especially if yields rise steeply.
Risks to this view
The bullish outlook could be invalidated by a stronger-than-expected domestic inflation reading or a shift in Fed policy towards easing rates due to global economic pressures. Any sudden intervention in the USD/JPY pair could also lead to a rapid whipsaw in USD positions.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UBS | Bullish | 1.1800 |
UOB | Bullish | 1.1800 |
Standard Chartered | Neutral | 1.1600 |
Articles FX Daily: Nervousness continues Published 07:45 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The FX space was shaken by a sharp move in USD/JPY yesterday, which prompted intervention fears. Today’s calendar includes US ISM services. Our view remains that risks are mostly on the upside for the dollar.
Czech wages numbers and Turkish August inflation test hawkish pricing Frantisek Taborsky , Francesco Pesole and Chris Turner August inflation figures are due in Turkey today USD: Upside risks persist A sharp jump in the yen yesterday, potentially due to another intervention (more in the JPY section below), had a knock-on negative impact on the dollar across the board. But towards the end of the session, only currencies backed by positive domestic stories (AUD, CAD) had hung onto gains, with the move fading elsewhere. On the data side, ADP payrolls came in at 38k, leaving few marks.
Market conviction on a September hike decreased slightly yesterday, with pricing declining from 18bp to 15bp, but that was likely due to the oil rally stalling. Today, the ISM services report is in focus, and expected to flatten at 54.1. The bar to drive the Fed away from a September hike looks fairly high, especially for second-tier data.
We retain a preference for the upside in the dollar, as front-end rates and higher energy prices both point up. The main risk remains that higher back-end yields can prompt more interventionism by the Treasury and a revamp of the debasement trade. Elsewhere, CAD had a rare domestic boost after the Bank of Canada delivered a hawkish hold.
The bank now sees inflation risks rising on the back of the prolonged US-Iran conflict (but not tariffs) and Governor Tiff Macklem explicitly opened the door for rate hikes. Markets are pricing in 22bp by December, but we still aren’t convinced. Core inflation is at target and the activity/jobs impact of the trade spat with the US can be substantial.
We still expect USD/CAD to rise above 1.390 as the tariff premium remains underpriced. Francesco Pesole EUR: Markets look too hawkish on ECB Our macro team has published a preview of next week’s ECB meeting, when a hike is widely expected. Our take is that policymakers may be more concerned about widening European bond spreads than second-round inflation risk at this point, which argues for a less hawkish message than what markets may be expecting.
The EUR swap curve is now embedding three hikes by April 2027, which seems overly hawkish considering core inflation has remained so well behaved. But energy price increases (European TTF gas touched €75/MWh yesterday) probably argue against any dovish repricing until receiving input from the ECB itself. We still feel risks are condensed to the downside in EUR/USD and expect a return to the 1.150-1.155 range in the near term.
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