2026 Euro Outlook: Banks Eye 1.25 as Dollar Hegemony Wanes

As traders position for the medium term, a consensus is building among major investment banks that EUR/USD is poised for a structural bull run, potentially targeting the 1.20-1.25 range by 2026. The forecast is predicated on a convergence of transatlantic monetary policy and a rotation of global capital away from US assets.

The Macro Pivot

The driver for a weaker Dollar is the erosion of the “US exceptionalism” trade. With the Federal Reserve expected to cut rates towards a neutral range of 2.75%-3.00% by mid-2026, the real yield advantage that bolstered the Greenback from 2022 to 2024 is evaporating.

• Goldman Sachs projects 1.25, citing a diversification of global equity portfolios out of expensive US tech and into undervalued European markets.
• Deutsche Bank aligns with the 1.25 target, emphasizing that a recovery in Asian currencies (CNY/JPY) will act as a force multiplier for broad Dollar weakness.

Structural Headwinds in Energy Trade

However, friction in real-economy trade remains a risk. Recent data shows the EU is struggling to meet its ambitious $750 billion energy purchase commitments from the US.

• LNG Shortfall: EU imports of US LNG have not met targets due to falling prices and infrastructure bottlenecks.
• Implication: If the EU fails to balance trade through energy purchases, trade tensions could resurface under a protectionist US administration, weighing on the Euro.

Technical Landscape

Technically, the Euro is showing signs of a long-term bottom. The pair has reclaimed its 200-day moving average and established higher lows on weekly charts. A sustained break above 1.19 would confirm the end of the secular bear trend, opening the door for the predicted run to 1.25. Risks to this outlook include an unexpected re-acceleration of US inflation or renewed political instability in France.