Euro: Spreads support upside bias against US Dollar – Scotiabank

Scotiabank analysts Shaun Osborne and Eric Theoret indicate a positive outlook for the Euro against the US Dollar, with the pair trading within the mid-1.15 range and experiencing modest gains. This upward momentum is driven by Euro area GDP figures and a return to a trade surplus. Narrow yield spreads add further support to the Euro, with analysts estimating fair value at 1.1641, surpassing the current spot price.

Technical analysis suggests a bullish sentiment, supported by price levels near 1.1500 on the downside and 1.1580 on the upside, as well as the 200-day moving average. The Euro is closing the week's trading session with a 0.2% increase against the USD, reaching the mid-1.15s. Eurozone GDP growth for the second quarter remained steady, with a 0.4% quarter-over-quarter increase and a 1.0% year-over-year growth rate.

Additionally, the trade balance turned surplus in June, reversing a brief deficit that had been present since March and May. The Euro's yield spreads have been recovering, climbing past the mid-July peak to reach levels not seen since mid-May. This recovery suggests potential for further sentiment-driven gains, as the options market has reduced its protection premium against EUR weakness.

Despite this positive outlook, the EUR faces potential challenges, as bearish data from the CFTC highlights vulnerabilities due to the improvement in spreads. Bullish indicators include an RSI above 60, signaling renewed bullish momentum. Support levels are present at 1.1500, with resistance near 1.1580, while additional support can be found at the 50-day moving average (1.1466), and resistance is anticipated around the 200-day moving average (1.1630).