Traders Vs. Analysts
There’s a disjunction between traders’ positioning and analysts’ forecasts emerging within EURUSD. Lets start with the former, over the last couple of months demand and open interest has been building a case for US Dollar exceptionalism within FX investment products. Specifically, within the options space, we’ve seen the price investors are paying for upside exposure to the Dollar appreciate significantly over that exposed to the downside. This would all be less surprising should analyst forecasts not still be pointing to a significant downside in the greenback.
The median analyst forecast for 2027 sits at 1.21 for EURUSD. That’s approximately 4% above yesterday’s closing price and 3.5% above the forward price for mid-2027. A dislocation between forecasted and current value is not uncommon and is often attributable to the difference between current market forces versus the fundamentals behind that asset. However, those market forces only typically dislocate prices from forecasts to a limited degree and for a relatively short period of time. In the longer run, unless the forecasts are wrong or fundamentals change, the two generally appear magnetised to one and other.
The size of the premium being paid for positive exposure to the US dollar is not insignificant either. As of yesterday, over a period of one-month that stood at 0.5%, the highest in two months, and over 0.6% for a one-year duration on Bloomberg’s US Dollar index. Analysts’ forecasts for the dollar index has remained within a range of 1.20-1.24 for about one year. The gap between the forecast and forward price for next year hasn’t been this wide since March, when the prospect of an emerging conflict between the US and Iran disturbed spot and forward pricing. A gap of this extent is unlikely to persist for long so, which will break first: expectations or positioning?
Discussion and Analysis by Charles Porter
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