Euro: Bearish bias with scope toward 1.12 against US Dollar – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret highlight renewed Euro (EUR) weakness versus the Dollar (USD), driven by widening negative Eurozone–US yield spreads and a hawkish repricing of Fed expectations while European Central Bank (ECB) views stay steady. Short-term EUR/USD technicals are bearish, with deeply oversold RSI and little support ahead of 1.12, while the bank looks for a near-term 1.1300–1.1400 range and minor resistance above 1.1450.

Negative spreads and oversold technicals

"The EUR is weak and entering Wednesday’s NA session with a 0.4% decline vs. the USD, a mid-performer in an environment of continued USD strength."

"The EUR’s latest weakness is fundamentally-driven, reflecting a renewed widening in deeply negative yield spreads."

"The outlook for relative central bank policy remains a headwind for the EUR, largely driven by the recent hawkish re-pricing of Fed expectations as those for the ECB have remained largely unchanged."

"A narrow estimate of the EUR’s fair value, based solely on the 2Y Germany-US yield spread, has largely mirrored the recent decline in spot."

"EUR/USD short-term technicals: Bearish – the RSI is deeply oversold below 30 and spot is extending its recent bearish break with little in terms of material support ahead of 1.12. Short-term price action would now suggest minor resistance above 1.1450. We look to a near-term range bound between 1.1300 and 1.1400."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)