Scotiabank strategists Shaun Osborne and Eric Theoret report that the Euro (EUR) is consolidating around the low 1.14s against the US dollar, with the currency showing mixed performance among G10 peers as markets reassess the impact of rising oil prices on the euro area's terms of trade and the European Central Bank's (ECB) interest rate trajectory [1]. The strategists highlight that the market has notably repriced expectations for ECB tightening, now anticipating approximately 35 basis points of rate hikes by December, which is an increase of more than 15 basis points since July 1 [1]. This repricing has provided fundamental support for the EUR through yield spreads, with fair value estimates for the 2-year spread climbing to the mid-1.14s [1].
Despite this support, the strategists caution that the resurgence in geopolitical risk, particularly the rally in oil prices, poses a potential headwind for the EUR as it could negatively affect the euro area's terms of trade [1]. Technically, the EUR/USD remains in a near-term range between 1.1380 and 1.1480, with the daily chart showing a still-bearish (sub-50) RSI, though intraday charts have become more constructive since late June [1]. The analysts remain cautious and suggest that a more bullish outlook would require a break above 1.15 [1].
No specific market reactions or analyst forecasts beyond the current range-bound outlook and cautious sentiment were provided in the article [1].
CONCLUSION
The Euro is currently supported by a repricing of ECB tightening expectations, but faces potential headwinds from rising oil prices and geopolitical risks. Analysts see the EUR/USD as range-bound in the near term, with a cautious outlook prevailing unless the pair breaks above 1.15.