Scotiabank strategists Shaun Osborne and Eric Theoret report the Euro (EUR) is slightly softer versus the US Dollar (USD) but supported by a sharp recovery in yield spreads and stronger German industrial production. Renewed hawkishness from European Central Bank (ECB) policymakers is lifting Euro area rate expectations. They see near-term upside for EUR/USD, with technicals pointing to a drift toward 1.15 within a 1.1400–1.1500 range and limited resistance before 1.1580.

Hawkish ECB supports Euro

"Bearish/neutral – the recovery in the RSI is important, reflecting a clear fade in bearish momentum and a drift back toward the neutral threshold around 50. The near-term balance of risk appears to favor gains and a drift toward 1.15 and we note the absence of any material resistance ahead of 1.1580. The medium-term trend is flat, and we look to a near-term range bound between 1.1400 and 1.1500."

"The EUR is soft, down a fractional 0.1% vs. the USD as it consolidates within its range from last Thursday with congestion in the mid-1.14s. Tuesday’s releases have been limited to stronger than expected German industrial production data for May (0.9% m/m vs. 0.1% exp.)."

"The outlook for relative central bank policy is providing renewed support for the EUR and yield spreads are showing a sharp recovery from last Wednesday."

"Euro area rate expectations are climbing sharpy, reflecting renewed hawkishness from a range of ECB policymakers, including executive board member Schnabel who specifically pushed back on the idea of softening the central bank’s guidance in response to the latest decline in oil prices."

"We see near-term upside for the EUR as markets reprice their outlooks for both the ECB (higher) and the Fed (lower)."

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