Euro-Dollar: 1.20 to Become Support, Not Resistance: HSBC

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HSBC tacticians see the outlines of a higher range for the euro to dollar exchange rate in the coming months.

In a new monthly strategy note, analysts say EUR/USD as overwhelmingly a dollar story, with traditional drivers such as global risk sentiment and relative interest rates playing a diminished role in what is a constructive outlook for the pair.

"The EUR’s allure is simply that it is ‘not the dollar’," HSBC says, underscoring the view that euro strength is primarily a reflection of persistent USD vulnerability.

EUR/USD has risen around one per cent in 2026, with the advance stretching to a high of 1.2050 on Jan. 27 before the dollar pared losses, bringing the market back down to 1.1860 at the time of writing.

HSBC says this pullback does little to alter the broader trajectory but is in keeping with the ebb and flow the FX market typically respects.

“Given our expectations for further USD weakness, this should drive EUR-USD higher with 1.20 to become support not resistance,” the bank says.

The strategists point to what they describe as structural frailties in the U.S. dollar, suggesting the reassessment of the currency’s long-term value is unlikely to fade quickly.

As a result, the premium weighing on the dollar is expected to persist rather than reverse.

“We expect EUR-USD to push back above 1.20. Valuations point to some degree of ‘cheapness’ for EUR-USD, with near-term fair value close to 1.2050. We expect 1.20 may soon be a key support level for the exchange rate,” HSBC adds.

🎯 EUR/USD year-ahead forecast: Consensus targets from our survey of over 30 investment bank projections. Request your copy.

From a positioning perspective, the bank acknowledges that investor exposure is skewed toward further euro gains, but does not see this as a material obstacle.

Regarding the European Central Bank and increased speculation that the central bank will be increasingly uncomfortable with the euro's strength, HSBC says it would need a bigger move higher in the EUR to prompt a response.

Analysts at ING Bank say in a recent note that the ECB's pain threshold will be closer to 1.25.

"Any overshoot to 1.25 could well prompt a European Central Bank rate cut," say analysts at ING.

The ECB tends to not comment on the euro's value, judging that silence is in itself a compelling policy tool.

However, it does plug into inflation forecasts, and a materially stronger euro implies materially lower import costs, which would weigh on inflation and invite speculation of a cut.