ABN AMRO has pared back its expectations for EUR/USD even as it sees the US dollar weakening on a broad basis. The bank has adjusted its view after revising its European Central Bank stance and adding political risk around the French and US elections.
In its updated policy assumptions, ABN AMRO sees the European Central Bank delivering one more rate hike, while the Federal Reserve is expected to remain more dovish than markets anticipate. Against that backdrop, the bank now forecasts EUR/USD at 1.18 in 2026 and 1.23 in 2027, implying a slightly softer path for the euro than in its previous projections.
Policy and Political Risks Define the Near-Term Outlook
We still expect the US dollar to weaken more broadly over the medium term. However, we have made a modest adjustment to our EUR/USD forecasts because of recent political and central bank developments. Taken together, these factors point to slightly less upside for the currency pair through the end of the year.
The recent French legislative election resulted in a hung parliament, creating uncertainty around fiscal stability and capping the euro’s potential. This political risk is a significant headwind, even as Eurozone inflation remains sticky at 2.4% as of last month’s report. That persistent inflation keeps the pressure on the European Central Bank to deliver one final rate hike, providing a floor for the currency.
Meanwhile, the US economy is showing clearer signs of cooling, with the latest jobs report from June adding only 150,000 new payrolls. This reinforces our view that the Federal Reserve’s next move is more likely to be a rate cut than a hike. This policy divergence is the primary reason we see the dollar weakening against a basket of currencies into 2027.
Strategic Trading Implications for EUR/USD
Given this outlook of a slow, capped ascent for EUR/USD, we are advising against simple long call options. Instead, traders should consider constructing bull call spreads, targeting a move towards 1.16 over the next quarter. This strategy profits from a gradual rise while limiting the upfront cost and risk from time decay.
For traders looking to generate income, selling out-of-the-money puts below the recent 1.12 support level could be effective. This approach benefits from sideways or slightly upward price action. However, due to the political risks, any core long positions should be accompanied by protective puts to hedge against a sudden downturn.
