Rates Spark: Data for the EUR belly
The Desk sees room for EUR belly curve recovery pending upcoming data, particularly the flash PMIs and ECB’s consumer inflation expectations survey slated for this Friday. Per the full note from ing-think, while long-end US yields have fluctuated significantly, European yields have experienced less volatility, stabilizing just above the 3.25% mark. Current market sentiment shows limited expectations for forward rate cuts, yet a significant downside surprise in eurozone PMIs could prompt a recalibration around ECB rate hike expectations. This presents an opportunity to adjust positions as consensus forecasts suggest the EUR belly has potential for upward movement amidst current economic conditions.
What the desk is arguing
The Desk is asserting that upcoming macroeconomic data could provide support for the EUR belly curve amid a stabilizing yield environment. According to ing-think, any downside surprises related to the eurozone PMIs might trigger a recovery in EUR yields, particularly as the market is already pricing in ECB rate hikes.
The current yields for 10-year Bunds have shown minimal deviation, remaining above 3.25% despite substantial movements in US Treasuries. This suggests that market participants are awaiting impactful data to determine the next steps in their positioning, particularly as expectations for rate adjustments by the ECB remain firm.
Where it sits in our coverage
Current consensus targets for EUR/USD are positioned at a median of 1.1700 for March 2026, ranging from 1.1200 to 1.2000. Key firms contributing to this forecast include: - rabobank: Mar26 at 1.1759, Dec26 at 1.1400 - commerzbank: Mar26 at 1.1900, Dec26 at 1.2200 - ubs: Mar26 at 1.2000, Dec26 at 1.2000
The Desk's position aligns closely with other firms, particularly rabobank and commerzbank, who are leaning towards a bullish outlook for EUR/USD through 2026.
How other firms see it
Firms poised like morganstanley and goldman maintain a bullish stance with targets above the current market levels, while others like hsbc and anz present a more conservative outlook for the EUR going into 2026.
The direction of the EUR/USD is closely tied to both the ECB rate path and developments in the GBP/USD given the underlying economic conditions in the Eurozone and UK. Therefore, traders should keep an eye on the flow of eurozone data as it adjusts market expectations.
What the calendar says
With no high-impact events scheduled in the next 30 days, Friday’s release of the PMIs stands out as a pivotal moment for market positioning leading into the subsequent weeks.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Upcoming PMIs and inflation expectations could influence ECB rate hike sentiment.
- 02Recent stability in Bund yields contrasts with volatility in US Treasuries.
- 03Cross-firm consensus shows bullish sentiment for EUR/USD through 2026.
- 04Market focus is shifting towards eurozone data releases for further insights.
Market implications
Watch for any volatility in the EUR belly curve aligned with PMIs on Friday. Currently, the level rests around 1.1700, which could be impacted by the consumer inflation expectations survey. Adjustments in positioning may emerge based on data prints that deviate from expectations.
Risks to this view
A pronounced upside surprise in eurozone PMIs could challenge prevailing perception of ECB rate hikes, leading to a recalibration of current rates and possibly a retreat in yields. Additionally, continued geopolitical tensions and energy prices may also put upward pressure on yields, complicating any recovery narrative for the EUR belly.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 1.1140 |
ABN AMRO | Bullish | 1.1500 |
Bank of America | Bullish | 1.1500 |
Articles Rates Spark: Data for the EUR belly Published 16:44 Rates Spark Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The latest volatility in long-end US yields has left the EUR side largely unimpressed. But we look to Friday's data, not so much to challenge the near-term hike discount, but with regard to whether the European Central Bank will be able to back track its tightening in any meaningful way further down the road Benjamin Schroeder Any downside surprise to the eurozone PMIs could help the belly of the curve recover somewhat With markets firm on upcoming ECB hikes, data might impact the belly more While US 10y Treasuries have spanned a range of more than 11bp over the past three sessions, 10y Bund yields have remained remarkably sticky just above the 3.25% level, spanning a range of merely 3bp. While certainly there has been a focus on the US side of things around the US Treasuries actions, it is also partly down to an absence of EUR specific data and events.
The picking up of issuance and ongoing concerns around energy and geopolitics are factors to explain elevated yields if we had to lay a finger on it, but they have not really added volatility looking at the traded ranges. There has been somewhat more movement on the front end, and if anything, this is where the end of the week could now see more volatility with the release of the flash PMIs, and the ECB’s consumer inflation expectations survey. The consensus points to marginal weakening in the PMIs, but not to the degree that would really challenge the current rate hike discount.
Any downside surprise, though, might help the belly of the curve recover somewhat. What we have seen since the summer is that data on balance has come in better despite the challenging backdrop. Alongside persistent energy concerns, this has helped put relatively more upward pressure on the belly of the curve.
By now, the market has basically shed its hopes for any meaningful backtracking of the ECB tightening further down the road – the 1m OIS out 2 years is at the same level as 1m OIS out 1 year. Since around mid-March, the 2y forward had been consistently below the 1y forward apart from three very brief episodes. Friday’s events and market view The data calendar is busier as the market eyes the release of the flash PMIs.
In the eurozone, the consensus is looking for a marginal drop in the composite from 52 to 51.7, which would still leave it in expansionary territory. In terms of other releases for the eurozone, consumer confidence in August, surveyed by the Commission, is seen remaining at subdued levels. Consumer inflation expectations for July, surveyed by the ECB, are seen unchanged at 3% over the 3-year horizon.
Sources & References
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