The Euro (EUR) is soft, down a modest 0.2% against the US Dollar (USD) and fading a slight portion of this week’s gains. Interest rate differentials remain supportive, providing a fundamental basis for the EUR’s recovery of its early July losses, as markets reprice their expectations for ECB rate cuts in the aftermath of Thursday’s decision, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

EUR soft despite broader bull trend and ECB support

"A widely expected hold was ultimately delivered, however markets have delivered a meaningful reappraisal of their expectations for cuts in response to President Lagarde’s press conference, where she conveyed the Governing Council’s high degree of comfort with current policy settings."

"Markets are now only pricing in about 15bpts of easing by year end, an erosion of 10bpts since the start of the week. In terms of data, Germany’s IFO sentiment figures were largely in line with expectations. Next week’s highlight will be the release of preliminary CPI data scheduled for Friday, August 1."

"The multi-month trend is bullish as we continue to highlight the sequence of higher lows and higher highs since February. The RSI is bullish, above 50, and the 50 day MA remains upward sloping—offering confirmation to momentum. We look to a near-term range bound between 1.1700 support and 1.1780 resistance."