Euro: Soft tone against US Dollar with stable ECB expectations – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret note EUR/USD around 1.1418 trading softer against the US Dollar, though mid-pack within G10. Euro area Producer Price Index (PPI) and retail sales were in line with expectations, while German factory orders surprised higher. Short-term rates have stabilized and the curve normalized, with markets expecting no European Central Bank (ECB) move on July 23 and a 50% chance of a September hike.

Euro soft as curve normalizes

"The EUR is soft, down 0.2% vs. the USD and a mid-performer among the G10 in an environment of broad-based USD strength."

"The short-term rates market has shown signs of stabilization over the past week or so, and the rise in implied yields on medium-term contracts has allowed the curve to normalize following an inversion that has been observed through most of the period since mid-March."

"The next ECB decision is scheduled for July 23 and markets are expecting no policy change while pricing in a 50% chance of a 25bpt hike for September 10."

"Bearish/neutral – the recovery in the RSI is notable, climbing from a late June sub-30 (deeply oversold) low to the low 40s with a gentle drift back toward the neutral threshold at 50. The medium-term trend remains largely neutral, with a flat range from mid-2025 roughly bound between 1.1300 and 1.2100. We see near-term support at 1.1380 and resistance above 1.1480."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)