Euro: Downside risks build against US Dollar as oil rises – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret note EUR/USD has slipped to the upper 1.15s, with sentiment turning bearish despite supportive yield spreads. They link the renewed deterioration to rising Oil prices and concerns over Euro area terms of trade. Spot is now drifting below their narrow fair value estimate of 1.1619, and technical focus has shifted toward lower support levels.

Bearish sentiment outweighs spread support

"The EUR is soft, down a modest 0.2% vs. the USD with a drift to a fresh two week low into the upper-1.15 area. The domestic release calendar has once again quieted down, forcing market participants to focus on broader themes."

"Measures of EUR sentiment have shifted bearishly over the past week or so, ending a brief period of bullish-leaning risk reversals in mid/late August."

"The renewed deterioration looks to have coincided with the latest recovery in oil prices, sparking concerns about the euro area’s terms of trade as a major energy importer. "

"The support offered by higher yield spreads appears to be overwhelmed by the turn in sentiment, with spot drifting below our narrow FV estimate at 1.1619."

"EUR/USD short-term technicals: Neutral – the RSI is still close to the neutral threshold at 50 but it has just – barely – broken below into bearish territory. The latest bearish turn in EUR has shifted our focus to the downside, and we now look to near-term support at 1.1520 following the latest drift below 1.1580."

"We also note the potential for additional support closer to the 50 day MA (1.1499). Near-term resistance is expected in the 1.16/1.1620 range. The medium-term range from mid-2025 remains flat with wide congestion centered around the mid-1.16s."

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