EUR/USD sticks to the negative stance near term – Scotiabank

Chief FX Strategist at Scotiabank Shaun Osborne has reiterated the bearish outlook on the pair in the short term.

Key Quotes

“With European shares under-performing and Eurozone-US short-term yield spreads stuck above 130bps, the EUR is looking quite “rich” relative to our fundamental fair value estimate (1.0600 today)”.

“Our model has not done a great job of tracking spot recently, partly because spreads have not correlated especially well with spot (2Y spread correlation was negative for a period following Brexit). Correlations are now starting to return to relatively firm, positive levels, however (2Y correlation at +51% today, the highest since Brexit). This should further limit the EUR’s ability to rally”.

“Short-term price signals suggest the EUR’s run higher may have peaked near-term at least. The 2-hour candle charts show a nice “evening star” top developed through the late North American/early Asian trade”.

“Price action has turned a little choppy in European trade but we think the upper 1.13 area should remain an area that attracts selling interest for now. Losses should accelerate below short-term channel support at 1.1275 currently”.