Scotiabank strategists Shaun Osborne and Eric Theoret report that the Euro (EUR) is currently slightly softer against the US Dollar (USD), down by 0.1%, as it consolidates within its recent range from last Thursday, with congestion noted in the mid-1.14s [1]. Despite this minor softness, the Euro is being supported by a sharp recovery in yield spreads and stronger-than-expected German industrial production data for May, which came in at 0.9% month-on-month compared to the expected 0.1% [1].
Renewed hawkishness from European Central Bank (ECB) policymakers is lifting Euro area rate expectations, with executive board member Schnabel specifically pushing back against the idea of softening the central bank’s guidance in response to the latest decline in oil prices [1]. This shift in policy outlook is providing renewed support for the Euro, as markets reprice their expectations for both the ECB (higher) and the US Federal Reserve (lower) [1].
From a technical perspective, Scotiabank notes that the recovery in the RSI reflects a clear fade in bearish momentum, with the near-term balance of risk favoring gains and a drift toward 1.15 for EUR/USD. They highlight the absence of any material resistance ahead of 1.1580 and expect the medium-term trend to remain flat, with a near-term range bound between 1.1400 and 1.1500 [1].
Overall, the combination of stronger German data, a sharp recovery in yield spreads, and hawkish ECB commentary is underpinning a near-term upside bias for the Euro against the US Dollar [1].
CONCLUSION
The Euro is finding renewed support from stronger German industrial production and a more hawkish ECB stance, with Scotiabank seeing near-term upside toward 1.15 against the US Dollar. Market sentiment is moderately positive as rate expectations for the Euro area climb and technicals point to further gains.