EUR/USD: the risk of a push lower is building - Scotiabank

Shaun Osborne Chief FX Strategist, noted that the EUR/USD picture is turning more bearish, with the pair having broken out the downside of its post June 23 consolidation range.

Key Quotes

“We are bearish on the EUR.  Eurozone data remains soft and while no policy changes are expected at Thursday’s ECB policy meeting, markets are clearly leaning towards expecting additional stimulus. President Draghi will have to remark on the post-Brexit environment and remind investors that the central bank stands ready to act further in support of its mandate. Markets will circle back in September, when the ECB next revises its economic forecasts. We note that while Eurozone-US short-term spreads are little changed, the 133bps premium offered by US 2Y bonds over Eurozone yields remains a compelling draw for investors.”

“EURUSD short-term technicals: bearish—We are dropping the “neutral” aspect of our technical assessment of EURUSD (though we recognize that intraday price action suggests some risk of a short-term snap back in the EUR today) because price has made enough progress to the downside this week (and trend momentum signals are aligning negatively across a range of timeframes) to suggest that the risk of a push lower in the EUR is building. New lows (below the late June low of 1.06915) would be more compelling for the bear argument but the market has broken out on the downside of its post June 23 consolidation which suggests another leg lower should develop shortly. We look for firm resistance on short-term gains towards 1.1075/80. “