Euro: Recovery stalls near 1.1550 resistance against US Dollar – Scotiabank
Scotiabank highlights that the Euro is slightly softer versus the Dollar after touching levels last seen in mid-June, with fundamentals still supportive as yield spreads turn. Spot has nearly converged with their fair value based on the 2-year Germany–US spread.
Scotiabank notes that the Euro has experienced a slight dip against the US Dollar, settling at a level not seen since mid-June. Despite this, the currency's fundamentals remain supportive, as evidenced by improving yield spreads. The spot rate has nearly aligned with the estimated fair value, based on the 2-year Germany-US yield spread.
For EUR/USD to continue rising, there must be a change in expectations of central bank policies or increased confidence, with near-term trading likely to stay within the range of 1.1500 to 1.1600. The Euro entered the North American session with a minimal 0.1% decrease versus the Dollar, trading cautiously following an overnight surge to a fresh local high, last observed in mid-June.
Fundamental factors continue to support the Euro, and its recent recovery has followed a similar trend to the shift in yield spreads. The spot rate has largely closed the gap to the Fair Value estimate, closely aligned with the 2-year Germany-US spread, currently sitting at 1.1538. Further gains will likely depend on a shift in the outlook for central bank policy or a boost in sentiment, considering risk reversals still indicate a premium for protection against Euro weakness.
June's euro area retail sales figures for second-tier economies were slightly below expectations, but were offset by stronger German factory orders, neither of which seemed to affect the spot rate. Both bullish and bearish indicators have surfaced. The latest rise in the Relative Strength Index (RSI) signals bullish momentum, as it climbs into the low 60s.
The recent gains have brought spot rates to a multi-week high, reminiscent of levels last seen in mid-June. However, the near-term resistance around the 1.1550 mark remains a concern. Analysts anticipate a range-bound trading pattern between 1.1500 and 1.1600. Meanwhile, GBP/USD faced a slight downturn at the end of the week, falling to the low 1.3600s after reaching fresh peaks above 1.3670 earlier.
This decline followed two consecutive gains and a weak advance in the US Dollar, alongside unfavorable UK economic data.
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