|

EUR underperforms G10 as sentiment weighs ahead of CPI – Scotiabank

The Euro (EUR) is trading on the back foot, underperforming most G10 peers amid a sentiment-driven pullback and a lack of fresh catalysts. With European Central Bank (ECB) pricing neutral and euro area CPI in focus midweek, EUR/USD is slipping toward technical support, reinforcing expectations of near-term range-bound trading rather than a decisive trend move, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Geopolitics drag on Euro despite supportive yield spreads

"The EUR is weak, down 0.3% vs. the USD and underperforming all of the G10 currencies with the exception of CHF. The broader tone appears to be dominating in the absence of any high-level data releases, and this week’s highlight will be the preliminary euro area CPI figures scheduled for Wednesday with headline expected at 2.0% y/y. In terms of the ECB, policymakers’ comments have been limited and the short-term rates market remains neutral pricing no policy changes in either direction."

"Yield spreads are climbing and threatening fresh highs, delivering fundamental support to the EUR. The divergence to spot is notable, and suggests some sentiment-driven weakness resulting from this weekend’s geopolitical developments. The options market is mirroring the movement in spot, with risk reversals moving in tandem with EUR and softening the premium for protection against EUR strength."

"The EUR is seeing modest weakness within the broader flat range from late June. The RSI’s dip below 50 is notable, and we note the renewed drift (lower) toward the 50 day MA at 1.1644. We look to a near-term range bound between 1.1620 and 1.1720."

Author

FXStreet Insights Team

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

More from FXStreet Insights Team
Share:

Editor's Picks

AUD/USD sticks to neutral bias above 0.7100 amid cautious markets

AUD/USD holds steady above 0.7100 in the Asian session on Monday as the US Dollar stalls its modest pullback from the highest level since late July amid persistent geopolitical uncertainties. The PBOC status quo on Loan Prime Rates also weighs on the Aussie. However, bets on another RBA rate hike continue to underpin the Australian Dollar ahead of the Trump-Xi Summit.

USD/JPY eases below 157.00 amid looming intervention risks

USD/JPY is easing back below 157.00 in Asia on Monday, undermined by modest Japanese Yen strength amid looming intervention risks after Friday's BoJ rate check. A Japanese holiday also keeps traders on edge amid escalating geopolitical tensions between Russia and Ukraine and in the Middle East. As a result, the US Dollar pauses its pullback, limiting the pair's downside.

Gold: Sellers test $4,350 on renewed USD upside

Gold kicks off the new week on a weaker note following Friday's failure near the $4,400 mark. The commodity currently trades near the $4,350 level as traders await further developments surrounding the Middle East crisis and their implications for inflation. This would influence interest rate expectations and, in turn, drive the non-yielding bullion.

Dogecoin extends gains as ETF inflows return and momentum improves

Dogecoin extends its recovery, trading above $0.088 after gaining nearly 6% last week. The bullish price outlook is supported by the return of institutional demand through DOGE spot Exchange Traded Funds. Meanwhile, improving momentum indicators and signs of whale accumulation suggest a positive outlook for the dog-themed meme coin.

Economics week ahead

This week is light on the domestic data front, with focus on Thursday's new home sales report. We expect sales to partially recover in August, rising 2.6% to a 623K pace after a sharp decline in July. Higher mortgage rates continue to weigh on affordability and demand, though builder incentives remained in place and conditions did not worsen materially during the month.

BoJ Recap: Not as hawkish as expected

The Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy and widely matching what everyone has been expecting for weeks.