Euro: Downside risks build against US Dollar as oil rises – Scotiabank
Scotiabank strategists Shaun Osborne and Eric Theoret note EUR/USD has slipped to the upper 1.15s, with sentiment turning bearish despite supportive yield spreads. They link the renewed deterioration to rising Oil prices and concerns over Euro area terms of trade.
Scotiabank strategists Shaun Osborne and Eric Theoret have observed a decline in EUR/USD to the upper 1.15s zone, as market sentiment shifts bearish. Despite supportive yield spreads, the euro area's terms of trade due to rising oil prices are causing concern. The EUR is now trading below their fair value estimate of 1.1619, with technical focus shifting towards lower support levels.
The EUR has slipped down a modest 0.2% against the USD, reaching a fresh two-week low in the upper-1.15 area. Market participants are now focusing on broader themes, as the domestic release calendar has quieted down. Sentiment measures for the EUR have turned bearish in the past week, reversing a brief period of bullish-leaning risk reversals in mid/late August.
The renewed deterioration coincided with oil price recovery, sparking worries about the euro area's terms of trade as a major energy importer. Short-term technicals indicate EUR/USD is neutral, with the RSI close to the neutral threshold at 50 but having barely broken into bearish territory. Near-term support is now expected at 1.1520, following the latest drop below 1.1580, while potential support closer to the 50-day moving average at 1.1499 is also noted.
Resistance is anticipated in the 1.16/1.1620 range, with medium-term flatness centered around the mid-1.16s.
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