Scotiabank strategists Shaun Osborne and Eric Theoret highlight the renewed weakening of the euro (EUR) against the dollar (USD), driven by widening negative yield spreads between the euro zone and the US and a hawkish revaluation of Fed expectations, while the views of the European Central Bank (ECB) remain unchanged. EUR/USD short-term technicals are bearish, with RSI deeply oversold and minor support ahead of 1.12, while the bank is looking for a short-term range of 1.1300-1.1400 and minor resistance above 1.1450.
Negative Spreads and Oversold Technicals
“The euro is weak and enters Wednesday’s NA session down 0.4% against the USD, a middling performance in an environment of continued strong USD.”
“The recent weakness in the EUR is fundamental and reflects a renewed widening of deeply negative yield spreads.”
“The outlook for relative central bank policy remains a downside for the euro, largely driven by the recent hawkish re-pricing of Fed expectations, while ECB expectations remained largely unchanged.”
“The narrow EUR fair value estimate, based solely on the Germany-US 2-year bond yield spread, largely reflects the recent decline in the spot price.”
“EUR/USD Short-Term Technicals: Bear – RSI is deeply oversold below 30 and spot extends its recent bearish breakout with little material support ahead of 1.12. Short-term price action would now suggest minor resistance above 1.1450. We are looking at a short-term range hovering between 1.1300 and 1.1400.”
(This article was created with the facilitate of an artificial intelligence tool and has been reviewed by an editor.)
