Eamonn Sheridan
Loading…
FX BANK FORECAST · COVERAGE
Institutional FX coverage in your inbox
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 38 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 38 institutional desks. No promotion.
UBS is buying EUR/USD weakness, arguing the slide from 1.17 to near 1.11 has overshot fundamentals and calling for a recovery to 1.16 by end-2026. Per the full note , the desk pins the drop on sentiment — stronger US data, diesel-export-ban chatter, rising global bond yields and French budget worries — rather than a deteriorating euro-area economy. The call rests on three legs: October Fed hike bets nearly fully priced out, Brent approaching $80 by next summer, and a French budget deal likely via Article 49.3 that would narrow OAT-Bund spreads. That 1.16 target sits exactly on our cross-firm consensus median for Dec-26, with spot at 1.1253 leaving roughly 3% of upside. No high-impact calendar events sit in the way over the next 30 days, so the trade's catalysts are spread-driven and headline-dependent.
UBS thinks the market sold the euro on worry rather than evidence. The desk frames the move from 1.17 to near 1.11 as a sentiment overshoot — stronger US data, concern over a possible US diesel export ban, rising global bond yields and French public-finance anxiety — none of which it reads as a fundamental repricing of euro-area growth.
The supporting evidence is threefold. First, markets have almost fully priced out an October Fed hike, removing one of the dollar's main supports; second, UBS expects Brent to approach $80 by next summer, a tailwind for a large energy importer; third, it sees a French budget deal as likely, possibly via Article 49.3, which would compress OAT-Bund spreads. UBS explicitly does not expect a wider European debt crisis and calls a sustained break below $1.10 increasingly unlikely.
The alternative read — the one UBS implicitly rejects — is that French spread widening is the early signal of a fiscal-risk premium that persists past any single budget deal. On that view, $1.11 is fair value, not overshoot, and the Fed-hike unwind is already in the price.
Our Dec-26 consensus median is 1.1600, within a 1.1200–1.2000 range, so UBS's 1.16 is squarely the street's center of gravity. The per-firm spread around it is wide: commerzbank 1.2200, cibc 1.2200, rbc 1.2000 and nomura 1.2000 sit at the top, while lloyds 1.1200 and hsbc 1.1000 anchor the bottom.
That makes the UBS call neither aggressive nor contrarian — it is the consensus restated with an explicit entry framework (buy below 1.12, exit just below 1.10, target 1.16) and a dated path to 1.18 in Mar-27 and 1.20 by mid-27 after the French presidential election. Recent revisions cut both ways: nordea lifted Dec-26 to 1.2400 and ing cut to 1.1000, a 14-big-figure disagreement that tells you how unsettled the French-fiscal variable remains.
Aligned with UBS on direction and level: rabobank (1.1800 Dec-26), commerzbank (1.2200), cibc (1.2200), rbc (1.2000), nomura (1.2000) and nordea (1.2400) all see the euro recovering through 1.16. Contrary: hsbc (1.1000), ing (1.1000), lloyds (1.1200), socgen (1.1400) and uob (1.1400) see a flat-to-lower euro, with the bears effectively arguing the French spread premium is structural.
The related axes to watch are the French OAT-Bund spread — UBS's own stated indicator — plus the ECB rate path and the Fed hike pricing that anchors the dollar leg. The EUR/USD trajectory here also mirrors the broader dollar-index tone, so USD/JPY and EUR/CHF positioning are useful spillover tells.
With no high-impact events scheduled over the next 30 days, the trade's catalysts are not data-dated. Watch instead for French budget headlines and any Article 49.3 invocation, oil price moves tied to Iran escalation, and OAT-Bund spread prints — the three swing factors UBS itself names.
How firms align with this view
Aligned with the desk view
Key takeaways
Market implications
Watch the French OAT-Bund spread as the primary trigger — narrowing back toward pre-budget levels validates the UBS entry below 1.12, while a break above 1.10 on widening spreads invalidates it. With no high-impact calendar in the next 30 days, headline risk from French budget negotiations and any Iran-driven oil spike will dominate price action.
Risks to this view
A French budget process that fails or drags past a 49.3 invocation, widening OAT-Bund spreads further, would force the exit just below 1.10 and undercut the recovery case. A renewed oil spike from Iran escalation hits the euro area as a large energy importer, and a Fed re-pricing back toward an October hike would restore the dollar support UBS says has faded.
| Firm | Stance | YE 2026 |
|---|---|---|
Société Générale | Bearish | 1.1000 |
Nordea | Bearish | 1.1000 |
UBS | Bullish | 1.1800 |
All 29 desk targets for EUR/USD
UBS’s view puts the euro’s recent weakness down mainly to sentiment rather than fundamentals, which would leave room for a rebound if French budget risks ease. The near removal of pricing for an October Fed hike takes away one of the dollar’s main supports, and UBS sees a sustained break below $1.10 as increasingly unlikely as a result. Energy is a key swing factor: the euro area is a large energy importer, so UBS’s expectation that Brent will approach $80 by next summer is supportive, while any escalation in the Iran war that lifts oil prices again would weigh on the currency.
French bond spreads are the indicator to watch, since narrower spreads would back the recovery case and further widening would undercut it. --- Earlier from analysts at the bank: UBS says neocloud sell-off does not derail AI boom, favours hyperscalers and chipmakers --- UBS thinks the market has sold the euro on worry rather than evidence, and with Fed hike bets fading and a French budget deal in sight, it sees the currency’s next move as up. Summary: UBS expects EUR/USD to recover to $1.16 by the end of 2026, after a slide from $1.17 to near $1.11 that it says has gone further than Europe’s economy justifies. The bank blames stronger US data, concern over a possible US diesel export ban, rising global bond yields and worries over French public finances.
It does not expect a wider European debt crisis and sees a French budget deal as likely, possibly using Article 49.3. With markets having almost fully priced out an October Fed hike, UBS sees a sustained fall below $1.10 as increasingly unlikely. UBS likes buying the euro below $1.12, targeting $1.16, with an exit just below $1.10, and sees support at $1.10 and $1.08 and resistance at $1.13 and $1.17.
Its forecasts rise to $1.18 in March 2027 and $1.20 by mid-2027, after the French presidential election. UBS expects the euro to recover to $1.16 against the dollar by the end of 2026, arguing that its recent slide toward $1.11 has gone further than Europe’s economic fundamentals justify and that markets have turned too pessimistic on the region. Strategists at the bank’s Chief Investment Office said the euro’s fall from $1.17 reflected a combination of stronger US economic data, concern about a possible US ban on diesel exports, rising global bond yields and worries over French public finances.
The euro was trading around $1.12 when the report was published. France has been a particular source of pressure, with the gap between French and German government bond yields widening significantly in recent weeks. UBS does not expect a broader European debt crisis, however, and sees a French budget agreement as likely.
That could come through Article 49.3 of the French constitution, which allows the government to pass legislation without a parliamentary vote, at the risk of facing a no-confidence motion. A deal should help narrow spreads and support the euro, the bank said. On the US side, UBS noted that stronger-than-expected inflation data initially pushed Treasury yields and the dollar higher, but the move reversed, with yields falling back and the dollar ending the day weaker.
Markets have now almost entirely priced out a US rate hike in October, which UBS said makes a sustained drop below $1.10 increasingly unlikely. The bank said it favours buying the euro below $1.12, targeting $1.16, with an exit point just below $1.10 to limit losses. It also sees value in selling downside protection in the currency pair to earn yield, given the rise in volatility.
UBS identified support at $1.10 and $1.08, with resistance at $1.13 and then at August’s highs around $1.17. Further out, UBS expects the euro to reach $1.18 by March 2027 and $1.20 by June and September 2027, after France’s presidential election in April and May. The bank also expects energy prices to ease next year, with Brent crude approaching $80 a barrel by the summer.
UBS flagged the US midterm elections as a risk not reflected in market pricing, saying a Democratic sweep of the House and Senate would likely be a modest negative for the dollar, though mainly a 2027 story, since the new Congress takes office in January. The main risks to its view are further strong US data, a material deterioration in European growth or a significant escalation in French fiscal concerns. Softer US data, easing geopolitical tensions, lower energy prices and a steadier outlook for France could speed up the recovery.
This article was written by Eamonn Sheridan at investinglive.com.
How we cover this story
EUR/USD momentum remains upside-biased despite French political headwinds, suggesting positioning has price in near-term domestic risks.
Widening Fed-ECB rate differential creates structural headwind for EUR/USD below parity; monitor for further policy divergence signals in upcoming central bank communications.
EUR/USD spot at 1.1212 sits 3.35% below the 31-firm Dec-26 median of 1.16, exposing a consensus that remains structurally bullish on the euro.
EUR/USD spot trades 3.11% below the 31-firm median Dec-26 target of 1.16, with a 0.135 range separating Commerzbank's 1.22 bull case from Citi's 1.085 floor.
EUR/USD spot sits 3.11% below the 31-firm median Dec-26 target of 1.16, with a 0.155 range separating Citi's 1.085 floor from Nordea's 1.24 ceiling.
29 investment banks see EUR/USD at 1.1530 by Dec 2026
View the live EUR/USD forecastING |
GS |
ABN AMRO |
Rabo |