Euro: ECB expectations support EUR against US Dollar – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret report that the Euro (EUR) is little changed near the low 1.16s as markets await Thursday’s European Central Bank (ECB) meeting, where a 25 bps hike and a hawkish tone are anticipated. They note supportive yield spreads and a fair value estimate around 1.1650, with technicals showing a marginally bullish RSI, a medium-term uptrend, and limited resistance toward 1.1680–1.1700.

Euro steady before ECB decision

"Focus this week centers on Thursday’s ECB, where policymakers are widely expected to deliver a 25bpt hike while maintaining a relatively hawkish tone as they seek to lean against the risk of energy-led inflation and mitigate any potential for broadening inflationary pressures."

"The outlook for relative central bank policy remains supportive as we note the continued recovery in yield spreads with a narrow (2Y Germany-US yield spread only) fair value estimate currently around 1.1650. In terms of fundamental releases, Germany’s July trade data delivered a larger than expected surplus while France disappointed with a wider than expected deficit."

"The calendar is relatively empty ahead of the ECB. In terms of sentiment, we note the absence of any meaningful reaction to Sunday’s German state election result that delivered an overwhelming victory for the far right AfD. Risk reversals are actually up on the day, suggesting a fading premium for protection against EUR weakness."

"Neutral/bullish – the RSI is bullish, albeit only marginally so as it hovers just above the neutral threshold at 50. The medium-term trend is bullish with a clear recovery from the late June low. The broader, longer-term chart remains a flat range."

"We see near-term support around last week’s lows near 1.1580 and see limited resistance ahead of the 1.1680/1.1700 range."

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