Morgan Stanley: How Much Will FX Hedging Flows Boost EUR/USD? - eFXdata
Morgan Stanley's analysis emphasizes the potential influence of FX hedging flows on EUR/USD, suggesting that these flows could significantly bolster the exchange rate. Recent market dynamics indicate a robust interest in hedging that may drive the EUR/USD closer to Morgan Stanley's bullish forecasts, which places the pair at 1.2000 for March 2026. Currently, the spot rate is 1.1500, hinting at a potential upward adjustment as hedging activities gain momentum. The firm highlights a range of 1.1300 to 1.2000 among various forecasts, underscoring the divergent view in the market.
What the desk is arguing
The desk believes that the ongoing FX hedging flows could play a decisive role in pushing EUR/USD higher, potentially reaching the levels outlined by Morgan Stanley. Per the full note , they specify that these flows might add upwards pressure amid a favorable outlook for the euro.
Evidence suggests that anticipation of improved cross-border investment and hedging against currency fluctuations is leading to increased demand for euros. The desk notes that Morgan Stanley posits a March 2026 target of 1.2000 for EUR/USD, indicating a significant increase from current levels.
Where it sits in our coverage
Our consensus targets for EUR/USD show a median forecast of 1.1700 for March 2026, with notable estimates from other firms such as: - jpmorgan: 1.1800 - goldman: 1.1800 - mufg: 1.1800
Morgan Stanley's position aligns with the upper end of our consensus range (1.1300–1.2000), indicating a more aggressive outlook compared to peers like bnpparibas and citi, which present lower targets at 1.1600 and 1.1300 respectively.
How other firms see it
A number of firms share a bullish outlook similar to Morgan Stanley, with jpmorgan, goldman, and mufg all projecting targets around 1.1800 for March 2026. In contrast, firms like citi and socgen maintain more conservative stances, predicting lower targets of 1.1300 and 1.1700.
This bullish sentiment around EUR/USD is mirrored in expectations related to European central bank policy shifts. Additionally, movements in USD/JPY could also serve as a barometer for broader USD strength, underscoring the intertwined nature of these currency pairs.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Morgan Stanley sees FX hedging flows materially boosting EUR/USD higher.
- 02Current spot rate at 1.1500 diverges from higher consensus targets, particularly 1.2000 from Morgan Stanley.
- 03Diverse views among firms indicate a robust market debate on EUR/USD's trajectory.
Market implications
Watch for potential upward movements in EUR/USD as hedging flows increase, especially if the pair approaches the higher end of the consensus target range at 1.2000. Additionally, monitor USD/JPY for signals about overall USD performance, which could impact the euro's strength.
Risks to this view
A reversal in the EUR/USD outlook could occur if central banks signal a more hawkish posture towards interest rates, supporting the USD. Should market sentiment shift dramatically on inflation reports or geopolitical tensions impacting Europe, this might also lead to a reassessment of the bullish EUR/USD scenario.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Rabobank | Bearish | 1.1000 |
ING | Bullish | 1.1300 |
MUFG | Neutral | 1.1200 |
All 31 desk targets for EUR/USD
Sources & References
How we cover this story
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Cross-firm research
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EUR/USD spot at 1.1191 sits 2.68% below the 31-firm median Dec-26 target of 1.15, exposing a consensus that remains structurally bullish despite tape underperformance.