Euro: Limited downside, range defined against US Dollar – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret report the Euro (EUR) is fractionally higher versus the US Dollar (USD), stabilizing after recent losses and attempting a modest recovery from upper-1.15 lows. They emphasize focus on European Central Bank (ECB) and Federal Reserve (Fed) policy, with euro area Consumer Price Index (CPI) seen at a fresh 3.3% peak. They see limited further downside, a bullish medium-term trend, and a near-term 1.1550–1.1650 trading band.

Euro stabilizes with bullish trend intact

“The EUR is up a fractional 0.1% vs. the USD and a mid-performer among the G10 currencies as we head into Monday‘s NA session. The EUR looks to have found some stability in the aftermath of Friday’s losses, and appears to be attempting a modest recovery from its upper-1.15 lows.”

“The focus is likely to remain centered on fundamentals and the outlook for relative central bank policy as we head toward the next ECB (Sept 10) and Fed (Sept 16) decisions. This weeks calendar includes the euro area CPI figures on Tuesday, where headline is expected to make a fresh cycle peak of 3.3%.”

“Yield spreads are showing signs of a renewed recovery following their pullback from mid-August, and policymakers at the ECB remain overwhelmingly hawkish as they manage expectations for a September hike and hint to the prospect of additional tightening before year end.”

“Neutral/bullish – the RSIs pullback has been sharp, and it now hovers just above the neutral threshold at 50. The trend from late June remains bullish, and we continue to highlight the possibility of a medium-term push back above the Q2 highs around 1.18.”

“We see limited scope for further downside from here and see support at 1.1550 and 1.1520. We look to a near-term range bound between 1.1550 and 1.1650.”