FX Daily: Pre-FOMC positioning may favour the dollar
The desk sees potential for dollar strength leading up to the FOMC meeting, as market participants position themselves for any hawkish surprises. Per the full note from ing-think, there is apprehension regarding forward guidance from Chair Kevin Warsh, indicating that traders might favor holding dollars as a hedge. With the recent drop in oil prices providing some support to EUR/USD, the overall sentiment is still cautious, primarily if geopolitical tensions do not ease further. Importantly, the upcoming GDP data will likely influence dollar positioning further, with current market pricing indicating only minor adjustments—8bp for Wednesday and a cumulative 41bp by year-end.
What the desk is arguing
The desk frames this as a potential bullish signal for the dollar amid pre-FOMC positioning. Recent geopolitical tensions, combined with Chair Warsh's skepticism about forward guidance, strengthen the case for precautionary dollar buying, especially against a backdrop of rising oil prices, which could pose downside risks to EUR/USD if they rebound swiftly.
Moreover, the dollar's current momentum is driven by a fragile pause in Middle Eastern conflicts and a significant reduction in Brent crude prices, now hovering around $92 per barrel. This shift reflects a market view that still sees the Fed's hawkish undertones playing a pivotal role in shaping monetary policy amid heightened market uncertainty.
Where it sits in our coverage
Our consensus target for EUR is currently 1.1419, with a median target of 1.1525 spanning forecasts from firms like goldman (Dec-26 target: 1.1200), bofa (Dec-26 target: 1.1240), and deutschebank (Dec-26 target: 1.2500).
This view aligns with the consensus that sees potential for dollar strength, particularly positioned lower than the median target. The overall sentiment could be considered bearish for EUR as the dollar gains traction.
How other firms see it
Several firms, including nomura and financialfirm, align with the desk's outlook, indicating they expect a strong dollar trajectory against the backdrop of the Fed's decision. Meanwhile, rabobank and bofa present more cautious perspectives, suggesting they see less upward momentum for the dollar compared to the existing consensus.
Keep an eye on related pairs such as EUR/USD and GBP/USD, as their movements will likely reflect sentiment surrounding the Fed's policy outlook and geopolitical tensions
What the calendar says
With no high-impact events scheduled in the next 30 days, market participants will remain focused on the outcomes of the Fed meeting this week, particularly the GDP data release on Thursday that may revise the growth narrative and influence dollar positioning.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The dollar is likely to see strong positioning ahead of the FOMC meeting, driven by geopolitical tensions and the Fed's policy outlook.
- 02Chair Warsh's skepticism regarding forward guidance raises the potential for market surprise, encouraging dollar buying as a precaution.
- 03Oil prices are fluctuating but currently support the euro; however, any increase could negatively impact EUR/USD.
- 04Consensus forecasts indicate a cautious outlook for the euro against potential dollar strength.
Market implications
Market participants should monitor the EUR/USD level around 1.1371 as positioning ahead of the Fed may lead to fluctuations. The impending GDP report on Thursday could serve as a catalyst for shifts in dollar strength, potentially affecting positions in EUR and GBP.
Risks to this view
Failures in de-escalating geopolitical tensions or an unexpected dovish statement from the Fed could undermine the bullish thesis for the dollar. Additionally, any significant resistance in oil prices rising past $100 would complicate dollar positioning.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Lloyds Bank | Bearish | 1.1200 |
Rabobank | Bearish | 1.1400 |
Bank of America | Bearish | 1.1240 |
Articles FX Daily: Pre-FOMC positioning may favour the dollar Published 07:42 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The Fed should keep rates on hold on Wednesday, but Chair Kevin Warsh’s opposition to forward guidance may encourage markets to hold dollars as protection against hawkish surprises. The sharp fall in oil prices is supporting EUR/USD, but downside risks remain unless a clear de-escalation path emerges. The Bank of England should remain on hold on Thursday Francesco Pesole , Frantisek Taborsky and Chris Turner The dollar is carrying stronger momentum into Wednesday's FOMC meeting USD: Weaker on a fragile pause in conflict The dollar enters Fed week ahead of Wednesday's decision with better momentum.
Last week, EUR/USD finally edged lower from its recent range as markets took the escalation in the Middle East more seriously. However, Brent has fallen back to $92/bbl, likely on the back of news that Iran and Oman are negotiating over the Strait of Hormuz and a second day of a pause in fighting with the US. As discussed in last week's webinar , it would not take much to push oil back above $100 and even $120.
Unless conflict continues to pause and negotiations gain traction, we still see room for the dollar to strengthen in the near term. A lack of de-escalation over the next 48 hours should also keep pressure on the Federal Reserve to sound hawkish on Wednesday. In our preview , we explain why we expect rates to remain on hold, but also why oil has firmly reclaimed a central role in shaping monetary policy expectations.
We also suspect that Chair Kevin Warsh's dislike of forward guidance raises markets' perceptions of meeting-day surprise risks. That could encourage precautionary USD buying ahead of the announcement. Markets currently price 8bp for this meeting and 41bp by year-end.
The key US data release this week is Thursday's second-quarter GDP report. Consensus expects annualised quarter-on-quarter growth of 2.1%, unchanged from 1Q. June core PCE is forecast at a moderate 0.2% month-on-month, although it may already look stale by then.
Francesco Pesole EUR: Gas remains too high for comfort EUR/USD has bounced back above 1.140 as oil prices dropped sharply today. Still, that move looks somewhat optimistic given the absence of a clear de-escalation path. Any renewed military strikes could quickly send Brent back to $100/bbl and EUR/USD below 1.1380.
Potential precautionary USD buying ahead of the FOMC may also weigh on the pair into Wednesday. Gas prices are another reason we remain cautious on EUR/USD unless tensions ease quickly. Even after today's decline, TTF is trading at €58/KWh, more than 30% above levels at the start of July and close to the March highs.
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