Euro softens as US Dollar strengthens – Scotiabank

The Euro (EUR) is soft, down 0.2% against the US Dollar (USD) while outperforming most of the G10 currencies in an environment of broad-based USD strength as we head into Wednesday’s NA session, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

ECB is seen to hold with mildly hawkish tone

"The outlook for relative central bank policy continues to dominate as market participants look to Thursday’s ECB meeting, where a widely anticipated hold (2.00% deposit rate) is expected to be paired with a constructive adjustment to the central bank’s economic projections and a moderately hawkish shift in communication."

"Narrowing interest rate differentials have been offering fundamental support to the EUR, and short-term correlation studies are confirming their importance as a near-term driver. Wednesday’s fundamental releases have included the final euro area CPI figures, nearly in line with expectations at 2.1% y/y on headline and 2.4% y/y on core. Germany’s IFO business sentiment survey release was also largely in line with expectations, delivering a fractional disappointment."

"EUR/USD’s latest rally looks to be taking a pause following its recovery from the mid/late November lows around 1.15. Momentum remains bullish however the RSI appears to be pulling back from overbought levels around 70. We see scope for near-term support around 1.1680 and near-term resistance above 1.1750."