Euro: ECB expectations support EUR against US Dollar – Scotiabank

Scotiabank analysts Shaun Osborne and Eric Theoret indicate that the Euro is currently steady near the 1.16 level as market participants anticipate the European Central Bank's meeting on Thursday. They expect a 25 basis point hike and a hawkish tone from the ECB. The strategists estimate a fair value for the Euro around 1.1650, supported by widening yield spreads and a bullish medium-term trend.

Technical indicators show a slightly bullish RSI nearing the neutral threshold, with limited resistance near 1.1680-1.1700. The upcoming ECB meeting is seen as critical, with policymakers likely to raise rates by 25 basis points and maintain a hawkish stance to counter energy-driven inflation and prevent inflation from spreading further.

Recent German trade data showed a larger-than-expected surplus, while France reported a wider-than-expected deficit. Despite this, the absence of a significant reaction to Germany's far-right AfD party's victory in its recent state election suggests fading protection against the Euro's weakness. The Aussie dollar is slightly higher above 0.7200, benefiting from a stronger Japanese Yen and the prospect of another RBA rate hike.

However, China's mixed trade balance data continue to hold the currency back. USD/JPY is trading near 154.00, supported by upbeat Japanese wage growth and a revised GDP, but the upside remains cautious due to technical corrections and ongoing optimism around a potential Bank of Japan rate hike next week. The oil market, while generally calmer than before, has seen a surge in the US diesel crack spread, reaching an intraday record above $102.00.