EUR/USD: Longer-term signals remain bearish - Scotiabank

The EUR remains in consolidation mode, as Shaun Osborne, Chief FX Strategist at Scotiabank, although he notes that  longer-term signals remain bearish.

Key Quotes

“The market has remained in the lower half of the big range seen around the Brexit reaction since the UK referendum two weeks ago and we note that Eurozone/US short-term rate spreads are widening modestly against the EUR again (at around 134bps this morning for the 2Y tenor).”

“We also note, however, that spot has been – very unusually – negatively correlated with yield spreads in the post-Brexit environment. With the market rangey and unresponsive to typical drivers, we look for more sideways movement in the market near-term. German CPI was finalized at +0.1% m/m in June (unchanged from the preliminary report).”

“EURUSD short-term technicals: neutral/bearish—Spot has clambered back above 1.11 to trade a cent above last week’s low. There has been good support evident on EUR/USD dips since late last week and we rather think the rebound is a reaction to the market’s failure to trade lower – rather than a positive reassessment of the EUR’s outlook.”

“Longer-term signals remain bearish and we look for EUR/USD gains to struggle and reverse in the low/mid 1.11s. EURUSD really needs to get back through 1.1170/80 – major, short-term resistance now – to have a real chance of stabilizing or improving.”