EUR/USD upside scope is limited. - Scotiabank

Two failed attempts to push under 1.12 this week suggest some modest upside risk for EUR/USD in the short run but we expect upside scope to remain limited to the 1.1240/50 area, said Shaun Osborne, Chief FX Strategist at Scotiabank

Key Quotes

“EUR/USD has stabilized in quiet trade. Modest gains off the overnight low below 1.12 may extend modestly – but not too far.”

“Overnight data showed upward revisions for French CPI data (+0.5% from +0.3% m/m in May) and the EU trade balance posted a record trade surplus of EUR28bn in April (well above forecasts of EUR21.5bn). The data may have underpinned the EUR at the margin but, with modest gains in US short-term rates and EZ-US short-term spreads nudging wider again (US 2Y spread at 130bps again), upside scope for the EUR is limited.”

“The EUR’s role as a proxy hedge for GBP nerves is underlined by the 1M EUR/USD risk reversal reaching the biggest premium for puts since 2011 earlier (3.3%) since 2011.”

“EUR/USD short-term technicals: neutral/bearish—Two failed attempts to push under 1.12 this week suggest some modest upside risk for EUR/USD in the short run but we expect upside scope to remain limited to the 1.1240/50 area.”

“Medium-term signals remain negative for the EUR and we continue to think that technical signals point to a test of the 1.1100 area (trend channel support) in the next few weeks. Above 1.1300/05 relieves pressure on the EUR.”