Weakness likely to persist below 1.10 – Scotiabank

ECB Vice President Villeroy said the central bank was very likely to cut rates at next week’s policy decision, in line with his comments and those of other policymakers who made a 25bp cut almost certain (and close to price) for the date of 17, head of FX at Scotiabank. Strategist Shaun Osborne notes.

Reduction in EUR to the previous minimum

“Broader short-term yield spreads against the US have effectively undercut the EUR in recent weeks and largely explain the spot’s decline from highs of 1.12. The EUR retains a soft tone, but a further shift in yields/spreads may be needed to generate more losses in the absence of new FX drivers (such as the US election) in the coming weeks.”

“Bearish—The minor spot consolidation seen over the week so far looks set to sour for the EUR, tilting risks to more losses. While the spot remains below 1.10, the breakdown trigger for the 1.12 double top pattern, broader risks are tipped for a decline to the 1.08s low.”