UniCredit's matrix of possible EUR-USD reaction to Lagarde and Warsh speaking in Sintra - FJElite

We think that the speeches tomorrow at the ECB Annual Forum in Sintra by ECB President Christine Lagarde and Fed Chair Kevin Warsh may mark an important crossroads for the near-term outlook for EUR-USD. The key factors here will be: 1. whether Lagarde confirms the dovish stance she expressed to the European Parliament or indicates that another rate hike remains the most likely scenario; and 2. whether Warsh confirms his hawkish tone or backpedals to a more neutral stance, making a move by December less certain.

A repricing of current Fed tightening expectations towards our new baseline scenario of steady rates for the remainder of this year and in 2027, together with easing risk aversion, remains a prerequisite for EUR-USD to move towards the 1.17 area, our new 4Q26 forecast. The matrix below highlights four possible scenarios and their likely implications for EUR-USD.