EUR/USD vulnerable to decline; fair value 1.01 – Scotiabank

FXStreet (Córdoba) – The EUR retains a weak undertone and we rather feel that the bias is liable to remain lower in the next few months as EUR/USD confronts the twin threat of tighter Fed and looser ECB policies, said Shaun Osborne, Chief FX Strategist at Scotiabank. He added that EUR/USD fair value suggest equilibrium is just above 1.01.

Key Quotes

“Even as US yields dip modestly today, spreads remain extremely adverse for the EUR at the short-end of the curve (core Eurozone-US 2Y cash spreads at -120bps remain at the widest level since early 2007).”

“Our fair value model, which incorporates spreads as one factor input, suggests equilibrium for EUR/USD today stands at a little above 1.01 and the relative overvaluation of spot is becoming quite significant (near two standard deviations). Pressure for a “catch up” in spot may be increasing.”

“EURUSD short-term technicals: bearish. EUR/USD has traded heavily over the past few hours…New lows should yield a further drop towards 1.06, possibly fairly quickly. Look for resistance now at 1.0750/60. Look to fade modest gains. Trend momentum remains strongly negative.”

The EUR retains a weak undertone and we rather feel that the bias is liable to remain lower in the next few months as EUR/USD confronts the twin threat of tighter Fed and looser ECB policies, said Shaun Osborne, Chief FX Strategist at Scotiabank. He added that EUR/USD fair value suggest equilibrium is just above 1.01.

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