Euro: Rally vulnerable to reversal against US Dollar – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret highlight that the Euro (EUR) is softer against the Dollar (USD) after an almost 3% rally from late July, with price action turning defensive. German IFO data and rising political risks, including widening Bund–BTP spreads and French budget talks, are in focus. Technically, EUR/USD remains bullish, with resistance above 1.1700 and support around 1.1580/1.1600.

Euro soft after August surge

"The EUR is soft and entering Monday’s NA session with a fractional 0.1% decline vs. the USD. Price action is somewhat defensive and notable in the aftermath of the EUR’s impressive near-3% rally from late July, opening up the possibility of a more meaningful reversal."

"Fundamental releases have been limited and this week’s highlight will be the German IFO business sentiment figures scheduled for Tuesday. Yield spreads have pulled back slightly, eroding some of the EUR’s support as US Treasury yields have climbed over the past week or so."

"Political risk appears to be rising as we note the renewed widening in intra-euro area government bond yields with a blowout in the bundBTP spread. Market participants are eyeing this week’s French budget negotiations as well as polls showing solid potential results for far right candidate Marine Le Pen."

"Bullish – the RSI is bullish and hovering around the overbought threshold at 70, pulling back slightly from last week’s peaks around 73."

"Recent price action has revealed clear near-term resistance above 1.1700 following a notable break above the 200 day MA (1.1631). We see limited additional resistance ahead of 1.1800 and see near-term support in the 1.1580/1.1600 area. "