EUR/USD sticks to the bullish stance – Scotiabank

Eric Theoret, FX Strategist at Scotiabank, noted the pair’s outlook remains on the bullish side in the short term and is now targeting the area above 1.1700.

Key Quotes

“EUR is testing fresh highs at levels last seen in August 2015, rising in an environment of broad-based USD weakness amid escalating political turmoil in Washington. The broader USD move is dominant and has been most clearly exhibited in EUR’s response to Thursday’s ECB decision. The meeting signals were unequivocally bearish for EUR as the policy statement maintained the easing QE bias (it had been potentially slated for removal) and the press conference saw Draghi strike an extremely prudent/patient tone. Draghi was evasive on the timing of the upcoming taper discussion and subsequent (unattributed) comments to media shifted the focus toward the October meeting (September had been expected). 10Y Germany-U.S. spreads have widened modestly (in a EUR negative manner) since Tuesday, however the continued EUR strength is indicative of the broader theme and its impact on flows. Note the modest downward adjustment to the inflation forecast in the Q3 ECB’s Survey of Professional Forecasters”.

“Momentum indicators are bullish and trend signals are strong as EUR pushes to fresh highs at levels last seen in August 2015. The negative divergence is somewhat concerning as we note the RSI’s failure to confirm the trend since May. All eyes are on the August 2015 high 1.1714. A break above leaves little in terms of resistance, given the swift nature of the 2014-2015 decline from 1.40 to 1.05”.