FX Daily: USD rally getting tired?
The desk posits that the recent USD rally appears to be losing momentum, driven by a lack of upward traction despite a backdrop of shaky risk sentiment. Per the full note source, even with a mixed signals from US data, including a downward revision on Q1 personal spending to 0.5%, the dollar's recent gains may be over-extended, suggesting a potential correction ahead. While the upcoming days remain devoid of high-impact data, the upcoming payroll release on July 4 and CPI on July 14 could alter the USD's trajectory. Our FX consensus remains modest, indicating a divergence in views across firms that forecast strengthening against the EUR and JPY.
What the desk is arguing
The desk argues that the USD's recent bullish trend shows signs of fatigue, especially as equity corrections in Asia don't bolster the dollar as one might expect. Per the commentary, the mix of risk factors suggests that the USD is pricing in too many positives which may not materialize in the medium term.
The data landscape is mixed, with the Q1 personal spending revision pointing to lower consumer activity at 0.5%, while GDP is slightly better at 2.1%. These contradictions highlight the fragility of broader dollar support, increasing the case for a potential USD correction.
Where it sits in our coverage
For the EUR/USD, our consensus target stands at 1.2000, with range estimates spanning from 1.1200 to 1.2000 as reported by the firms: - citi: Dec26 target of 1.1200 - deutschebank: Dec26 target of 1.2500 - hsbc: Dec26 target of 1.1800
This places our current coverage near the upper end of the range. The desk's bearish outlook for the USD diverges from the more optimistic targets held by deutschebank and hsbc.
How other firms see it
Several firms maintain a bearish stance on the USD, indicating a view that suggests further downside could be realized. Notably, citi has a target of 1.1300 for March 2026, reflecting skepticism about sustained upward momentum in the near term. Conversely, firms like deutschebank and hsbc foresee stronger performance from the EUR.
This narrative intersects with the USD/JPY dynamics, as the market establishes 162.0 as a key threshold for potential intervention by the BoJ to manage yen depreciation, highlighting the significant challenges for USD strength moving forward.
How firms align with this view
Key takeaways
- 01USD rally appears to be losing steam amid mixed economic signals.
- 02Key data releases on payroll and CPI may influence USD's next direction.
- 03Market is assessing the implications of intervention levels for USD/JPY.
- 04Divergence exists among firms regarding EUR and JPY targets.
Market implications
Traders should monitor the USD's ability to maintain support around current levels, particularly against EUR/USD and USD/JPY. Upcoming payroll data on July 4 is critical and could act as a pivotal event for positioning ahead of potential reversals.
Risks to this view
A stronger-than-expected payroll print or unexpectedly high CPI data could bolster the dollar, undermining the desk's bearish outlook. Additionally, if risk sentiment stabilizes, it could drive renewed demand for the USD in the near term.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bullish | 1.1800 |
ING | Neutral | 1.1700 |
Rabobank | Bullish | 1.1800 |
Articles FX Daily: USD rally getting tired? 08:08 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Risk sentiment remains shaky, but the dollar hasn't taken advantage of the latest correction in Asian equities. That may fit our view that USD is pricing in quite a lot of positives and faces downside risks, especially beyond the very near term. Elsewhere, markets may be growing some conviction that 162.0 is the new line in the sand for USD/JPY intervention Francesco Pesole and Frantisek Taborsky The dollar's momentum is fading a bit USD: Testing rally resilience The mix of risk sentiment and data inputs for the dollar has remained mildly USD-positive in the past 24 hours, but the dollar has inched lower – a potential sign that some bullish momentum is fading.
Yesterday’s rebound in US equities proved rather small and short-lived, and another correction in South Korean equities this morning is hitting global equity futures. On the data side, the message on personal spending was mixed. First-quarter data was revised sharply lower from 1.4% to 0.5% quarter-on-quarter, which clouded the strong (0.7% month-on-month) May print.
At the same time, first-quarter GDP was revised higher to 2.1%, underscoring the strength of the AI growth push. May’s core PCE came in as expected at 0.3% MoM, leaving all the weight of setting the next big direction for rate expectations to upcoming payrolls (4 July) and CPI (14 July). The equity story remains very central for FX at the moment, and indications of still-fragile risk sentiment in Asia make it challenging to call for a quick reversal of recent USD gains.
However, the latest price action seems to endorse, to some extent, our feeling that a lot of positives are in the price for the USD. At least beyond the very near term, the case for a dollar correction is getting stronger. Today’s US calendar is quiet, and the Fedspeak calendar only includes Neel Kashkari (a hawk) today.
Yesterday, Austan Goolsbee struck a more neutral tone compared to hawkish-sounding comments earlier this week, while John Williams unsurprisingly sounded more dovish than the current FOMC consensus. Francesco Pesole EUR: Stabilisation may continue EUR/USD is searching for some stabilisation in the 1.1350-1.140 area. Inputs from the eurozone should remain quite secondary for the pair in the short term.
Markets probably need a big CPI miss next week or broader market turmoil to price out the one hike left in the EUR curve for this year. Equally, the bar is set quite high to add back another hike. Most of the action in rate expectations is happening on the dollar leg, which should remain overwhelmingly dominant in EUR/USD.
Sources & References
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