Euro: Limited downside, range defined against US Dollar – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret report that the Euro (EUR) is slightly higher against the US Dollar (USD), settling after recent declines and striving for a small recovery from upper-1.15 levels. Their attention is on European Central Bank (ECB) and Federal Reserve (Fed) policies, with the euro zone Consumer Price Index (CPI) reaching a high of 3.3%.

They anticipate minimal further decline, a positive medium-term trend, and a near-term trading range of 1.1550–1.1650. The EUR has risen by 0.1% versus the USD and is a mid-performer among the G10 currencies as we enter the Monday trading session. Stability appears to have been achieved following Friday's losses, with an attempt at a modest recovery from upper-1.15 lows.

The focus will likely continue to be on fundamentals and the outlook for relative central bank policies leading up to the upcoming ECB (Sept 10) and Fed (Sept 16) decisions. This week's agenda includes the euro area CPI figures on Tuesday, with headline expectations indicating a fresh cycle peak of 3.3%. Yield spreads are showing signs of recovery after a pullback from mid-August, and ECB policymakers remain predominantly hawkish, discussing a potential September hike and potential additional tightening before the end of the year.

The RSI has shown a sharp pullback and is now near the neutral threshold at 50. The trend from late June remains bullish, and a medium-term push above the Q2 highs around 1.18 is still possible. Limited downside is expected, with support at 1.1550 and 1.1520. The near-term range is anticipated to be between 1.1550 and 1.1650.