Euro: Hawkish ECB hike expected to support EUR against US Dollar – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret report EUR/USD is flat in North American trade after touching a one-week high, with fundamentals supported by firmer European Central Bank (ECB) rate expectations on higher Oil prices. Markets fully price a 25 bp hike this Thursday and another in December. They anticipate a hawkish hike and see limited resistance until the 1.1680/1.1700 area, with support below 1.1580.

ECB pricing underpins tentative Euro recovery

"The EUR is entering Wednesday’s NA session unchanged vs. the USD following an overnight push to a fresh one week high. Fundamentals remain supportive as ECB rate expectations firm in response to the latest rally in oil prices, reflecting the ECB’s greater sensitivity to energy price risks in the current environment."

"A 25bpt rate hike is fully expected at Thursday’s meeting, and another 25bpts has been priced in for December. We anticipate a hawkish hike tomorrow, as President Lagarde unveils the latest forecast and signals ongoing concern about upside risk."

"In terms of data, releases have been limited to second-tier French industrial production data delivering an unexpected contraction in July. There are no major top-tier releases scheduled ahead of next week’s ZEW sentiment figures."

"Neutral/bullish – the latest recovery in the EUR is tentative and negligible, but there nonetheless as spot tests marginal one week highs in the mid-1.16s. The RSI is in the upper 50 area and climbing, leaning toward further near term gains."

"The 200 day MA (1.1634) looks to have provided modest closing resistance over the past week or so, however we note the absence of any meaningful resistance ahead of the 1.1680/1.1700 area. Near-term support is expected below 1.1580."

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