EUR softens in response to Germany’s Q2 GDP disappointment – Scotiabank

The Euro (EUR) is down a marginal 0.1% against the US Dollar (USD) and trading defensively on the back of Germany’s final Q2 GDP disappointment, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret note.

Latest pullback is notable but not yet worrisome

"Details were weak, with a greater than expected contraction in capital investment and negative revisions to the prior quarter. Yield spreads have pulled back over the past week or so, eroding some of the EUR’s fundamental support. The outlook for relative central bank policy is in focus as market participants look to Fed Chair Powell’s 10am ET speech and ECB President Lagarde’s panel discussion scheduled for Saturday."

"We remain medium-term EUR bulls on the basis of an increasingly dovish Fed outlook and an ongoing shift in the ECB’s bias – from dovish to neutral. We see scope for continued gains as markets continue to shed their expectations for ECB easing, given that December is still showing a 25% chance (9bpts) of a cut."

"The latest pullback is notable but not yet worrisome. The RSI remains close to the neutral threshold at 50, and overall congestion remains anchored around the 50 day MA (1.1646). We look to near-term support in the 1.1520-1.1550 area and see near-term resistance above 1.1700."