Euro: Support from ECB repricing and yields – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret notes the Euro (EUR) is slightly higher versus the US Dollar (USD), supported by a repricing of the European Central Bank (ECB) outlook toward renewed hawkishness and recovering yield spreads. They highlight markets now price about 35 bps of tightening by December, lifting fair value estimates for EUR/USD toward the mid to upper 1.14s despite only modest recent gains.

Euro aided by hawkish ECB repricing

"The EUR is entering Thursday’s NA session with a fractional 0.1% gain vs. the USD as it performs in line with most of the G10 currencies in quiet overall trade."

"The outlook for relative central bank policy is offering the EUR support as market participants reprice the ECB outlook in light of renewed hawkishness and a resurgence in geopolitically-driven oil price gains."

"Markets are currently pricing in about 35bpts of tightening by December, a considerable increase over the past week or so. Yield spreads are showing signs of recovery and lifting fair value estimates of the EUR toward the mid/upper-1.14s."

"Bearish/neutral—the EUR’s recent modest recovery is important, however the tepid gains have offered little in terms of shifting momentum in a more material way. The RSI is recovering back toward neutral but still remains below the 50 threshold as it climbs into the mid-40s."

"We see limited near-term resistance ahead of 1.15 and we look to a near-term range bound between 1.1380 and 1.1480."