EUR remains below 1.10 – Scotiabank

EUR/USD continued its slide below 1.10, but the EUR tone looks soft, notes Shaun Osborne, chief FX strategist at Scotiabank.

Dovish ECB and soft techs point to weakness

“EUR/USD losses held below 1.10, but EUR undertone looks soft amid sharp widening of EZ/US spreads (by around 40bps for 2-year cash bonds) since mid-September, against the background of weak activity in the euro area and the decrease in inflation. ECB Vice President Villeroy said the central bank would “very likely” cut interest rates again this month.

“The EUR is likely to remain weak ahead of the ECB decision on the 17th. EURUSD’s losses have eased around 1.0950 and near-term price action suggests a potential (minor) trough could develop.”

“However, the overall technical picture suggests that after repeated failures around the 1.12 area in recent weeks, the loss of support at the 1.10 point (the low between the 1.12 tests and now the resistance) has triggered an effective double top showing that losses extend to the 1.08 area in the next 1-2 months.”