Euro: Support firms with hawkish ECB pricing – Scotiabank

Scotiabank’s Shaun Osborne and Eric Theoret highlight that the Euro (EUR) is higher against the US Dollar (USD), supported by strong euro area Producer Price Index (PPI) and firmer European Central Bank (ECB) rate expectations. Markets now price more than one 25bp hike by year-end. Short-term EUR/USD technicals are neutral to bullish, with support around 1.1580 and limited resistance before 1.1650, while fair value is estimated near 1.1623.

Inflation data underpins Euro tone

"Fundamental releases have been mixed, with final services and composite PMI’s indicating modest expansion across the euro area but important contractionary (sub-50) prints for Germany and France. The hot PPI figures dominate however, as the ECB remains resolved to address intensifying inflation risks. The euro area’s July PPI printed 5.8% y/y, showing renewed pressure with a push toward the 5.9% cycle high from May."

"ECB rate expectations have firmed considerably over the past week or so, extending hawkish pricing beyond the 25bpts of tightening priced for September, with nearly one full additional 25bpt hike priced by year-end. Yield spreads are offering renewed support and our narrow (2Y Germany-US yield spread) FV estimate is currently at 1.1623."

"EUR/USD short-term technicals: Neutral/bullish—the latest stabilization in spot is important, revealing clear support below 1.16 and specifically 1.1580."

"The tentative gains are delivering a modest lift in momentum, pulling the RSI back into the mid-50s and shifting the balance of risk to near-term strength. We see limited near-term resistance ahead of 1.1650 and note the local high from mid/late August just above 1.17."

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