EUR steady following Monday's drop - Scotiabank

The Euro (EUR) is attempting stabilization in the mid/-upper 1.15s as it seeks to consolidate Monday's sizeable 1.3% decline against the US Dollar (USD), Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret note.

Spreads remain supportive

"Fundamentals remain supportive, as we note the gently rising trend in interest rate differentials (Germany-US 2Y spread). Sentiment has clearly been a factor in driving EUR movement, given the notable decline in risk reversals revealing a significant demand for protection against EUR upside."

"Extended bullish positioning has also left the EUR vulnerable to adjustment, as shown in the most recent CFTC report that saw the sizeable $18.4bn EUR long hold steady at the upper end of its historical range. In terms of data, this week's highlight will be the release of the July preliminary CPI on Friday. The latest ECB inflation expectations figures (not a typically market moving release) saw 1Y at 2.6% and 3Y at 2.4%."

"EUR/USD looks to be hammering a low at its 50 day MA (1.1570). The multi-month trend remains bullish, given the sequence of higher lows and higher highs since February. The RSI has drifted below 50, into bearish territory, but it remains close to neutral. We look to a near-term range bound between 1.1520 support and 1.1680 resistance."