Scotiabank’s FX team highlights a modest Euro gain versus the Dollar, with EUR/USD supported after Monday’s bullish reversal. The pair is shrugging off weak German ZEW data as sentiment and elevated yield spreads underpin the Euro. Analysts flag scope for a sentiment-driven recovery as EUR/USD retraces its recent geopolitically driven decline.

Euro supported despite weak German data

"The EUR is entering Tuesday’s NA session with a fractional gain and appears well supported following Monday’s bullish reversal."

"Germany’s ZEW investor sentiment survey—a leading indicator for industrial production by about 12-18 months—came in far below expectations."

"Sentiment remains dominant as we note the absence of any meaningful reaction to the disappointing German ZEW investor sentiment data."

"The US 2Y yield is equally quiet and also looking poised for an extension of its bearish turn. The German bund may be the catalyst, with a clear reaction to the weak ZEW print that followed Friday’s hanging man doji—a textbook bearish reversal candle formation."

"Yield spreads remain elevated and offer fundamental support, as risk reversals reveal a meaningful premium for protection against EUR weakness."

"Near-term risk lies with a continued improvement in the broader market’s tone and a sentiment-led recovery in the EUR as it retraces its recent geopolitically-driven decline."

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