Euro: Soft undertone but fair value higher against US Dollar – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret say the Euro (EUR) is marginally firmer versus the US Dollar (USD) on the softer USD tone, with ECB Governor Stournaras signalling continued gradual tightening. They judge EUR/USD retains a soft undertone and may be overshooting, as front-end spreads and risk reversals adjust, while their fair value model points to equilibrium around 1.1250, above current spot.

Euro edges up as ECB stays gradual

"The EUR is marginally higher on the day, reflecting the generally softer tone of the USD. ECB Governor Stournaras remarked that the central bank will likely stick with its policy of gradual monetary policy tightening."

"Final German September CPI was confirmed at 3.3% in the year. The EUR retains a soft undertone but spot pricing may be overshooting somewhat."

"Front-end spreads have narrowed a little from the early October levels and short-term risk reversal pricing has pared the premium for EUR puts somewhat. Our fair value model suggests spot equilibrium sits around 1.1250 currently."

"EUR/USD short-term technicals: Neutral/bearish – Bearish pressure on the EUR may be moderating but there is little indication from short-term price action that a rebound is developing."

"Intraday price signals suggest a minor low may be developing around the mid-1.11 area. But short-term trend resistance remains intact at 1.1215 and a push above this area is the bare minimum the EUR needs to achieve to strengthen in the short run."

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