EUR consolidates rally just below Thursday's multi-year high - Scotiabank

The Euro (EUR) is quietly consolidating this week's rally to a fresh multi-year high and entering Friday's NA session largely unchanged against the US Dollar (USD), Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

ECB Sintra forum next week

"The latest EUR gains have been fundamentally driven, underpinned by a EUR-supportive narrowing in deeply negative yield spreads between Europe and the US. The narrowing has been primarily driven by developments outside of Europe and specifically a reassessment of expectations for the Fed. For Europe, this week's releases offered little in terms of the narrative as PMI's remained close to 50 (no growth or contraction) while France released slightly stronger than expected preliminary CPI data - albeit with a headline print of 0.9%."

"ECB policymakers have been vocal in communicating a broadly neutral tone, pushing back somewhat against a short-term rates market that continues to price about 25bpts of easing by December. The ECB will host its Sintra forum (the ECB's Jackson Hole equivalent) next week from Monday to Wednesday. On trade, US/EU negotiations are proceeding privately and EU member states appear to be divided on their response to tariffs (retaliation)."

"The trend is bullish, momentum indicators are confirming, and the RSI's push to 70 leaves it somewhat overbought but still short of the momentum peaks reached in March and April around 75. We continue to highlight the importance of the 50 day MA as a level of medium-term support. We look to near-term support closer to 1.1600. In terms of resistance, we see little ahead of the 1.1850/1.1880 area."