Scotiabank strategists Shaun Osborne and Eric Theoret report renewed weakness in the Euro (EUR) against the US Dollar (USD), attributing the move to widening negative Eurozone–US yield spreads and a hawkish repricing of Federal Reserve (Fed) expectations, while European Central Bank (ECB) policy views remain steady [1]. The EUR entered Wednesday’s North American session with a 0.4% decline versus the USD, positioning it as a mid-performer in an environment of continued USD strength [1].
The strategists note that the EUR’s latest weakness is fundamentally driven, with the deeply negative yield spreads acting as a significant headwind. The outlook for relative central bank policy continues to weigh on the EUR, as the Fed’s stance has become more hawkish while expectations for the ECB have largely remained unchanged [1]. A narrow estimate of the EUR’s fair value, based on the 2-year Germany-US yield spread, has closely tracked the recent decline in the spot rate [1].
From a technical perspective, the EUR/USD is described as bearish in the short term, with the Relative Strength Index (RSI) deeply oversold below 30 and spot prices extending their recent bearish break. There is little material support ahead of the 1.12 level, while minor resistance is seen above 1.1450. Scotiabank expects a near-term trading range between 1.1300 and 1.1400 for EUR/USD [1].
CONCLUSION
The Euro’s decline against the US Dollar is being driven by widening negative yield spreads and a more hawkish outlook for the Fed compared to the ECB. Technical indicators suggest further downside risk, with little support before 1.12 and a near-term range expected between 1.1300 and 1.1400. Market sentiment remains bearish for the EUR in the short term.