The euro (EUR) is extending its recent consolidation zone and is trading within a narrow range in the middle/lower 1.16 region, according to Sean Osborne and Eric Theort, chief FX strategists at Scotiabank.
The ECB’s policy divergence supports the bullish outlook for the euro
“The outlook for relative central bank policy remains bullish for the euro, with ECB President Lagarde’s comments indicating upward revisions to the central bank’s forecasts. The ECB will publish its latest economic forecasts at next Thursday’s meeting, where a widely expected stabilization is likely to be coupled with a modest hawkish tone. A growing number of ECB policymakers have recently shifted their communications from neutral, bringing upside risks to the interest rate path.”
“Short-term interest rate markets have adjusted, with swaps now assigning a 50% chance of a 25 basis point rate hike by December 2026. Near-term risks lie with the Fed, as a cautious cut will only underscore the divergence in Fed/ECB policy. We are also observing a resurgence of political uncertainty in France, where the government is once again struggling to approve its budget. Franco-German bond yield spreads are slightly wider on the day, but within extended levels (> 80 basis points) observed in August/September.”
“The Euro has failed to extend the upward breakout of its recent range and has traded somewhat defensively over the past several sessions. The 50-day EMA (1.1604) appears to be offering some support, and momentum remains marginally bullish with the RSI declining modestly while remaining in the mid-50s. We remain bullish on the absence of a break below the 50-day EMA and look for a near-term range located between 1.16 and 1.17.”
