EUR appears vulnerable, consolidating around fresh multi-month lows with
data-driven weakness (weaker German factory orders) reversing on technical
support triggered by the break of 1.0850, said Eric Theoret, FX Strategist at
Scotiabank. They maintain expectations of EUR weakness on the basis of central
bank policy divergence.
Key Quotes
“The
European Commission has released its Autumn economic forecast, highlighting
‘subdued’ domestic demand and ‘challenging global conditions’ while underscoring
the upside surprise from export growth resulting from a 6% decline in the
trade-weighted exchange rate. The growth forecast is little changed, however we
note a material downward revision to the 2016 inflation forecast from 1.5% to
1.0% with 2017 seen at 1.6%-still below the ECB’s inflation target”.
“Translated comments from ECB President Draghi hint to a reiteration of
his dovish bias, and we maintain an expectation for EUR weakness on the basis of
central bank policy divergence. The 2Y German-U.S. yield spread continues to
widen and appears set to test-1.15%, a near-10 bpt widening from
Monday.”
“EURUSD short-term technicals: bearish—EUR is testing fresh
multi-month lows at levels last seen in July, with a heightened focus on the
July low 1.0809. A break of 1.0800 would shift the focus to further weakness and
the late- April doji candles around 1.0720. Momentum indicators are bearish but
have not yet reached oversold levels. Bearish trend signals appear to be
strengthening.”
