The euro is holding comfortably above the 1.16 handle against the US dollar, with EUR/USD last trading near 1.16, up roughly 0.15% from the previous close, according to the latest market data. The move comes as a fresh note from Scotiabank argues that the broader policy backdrop between the European Central Bank and the Federal Reserve continues to favour the single currency heading into the ECB's next meeting.
Yield Spreads Keep Improving in the Euro's Favour
Scotiabank's currency strategists say the relative outlook for central bank policy remains supportive of the euro, pointing to a continued recovery in yield spreads between Germany and the United States. Using only the 2-year Germany-US yield spread as a gauge, the bank puts a narrow fair value estimate for EUR/USD at around 1.1650, a level that sits close to where the pair has been trading. That narrowing spread reflects a market pricing either less aggressive Fed easing or a firmer ECB stance than it was a few months ago, and it has become one of the main technical anchors for the currency pair.
Germany's Trade Surplus Beats Forecasts, France Disappoints
On the data front, Germany's trade figures for July delivered a larger than expected surplus, underlining the resilience of Europe's biggest economy's external accounts even as growth elsewhere on the continent remains patchy. France told a different story: its trade deficit for the same period came in wider than expected, a divergence that highlights how uneven the eurozone's two largest economies have become on trade performance, even though the currency bloc trades as one.
A Muted Market Reaction to Germany's State Election
Sunday's German state election delivered a commanding victory for the far-right Alternative for Germany, AfD, a result that in other circumstances might have been expected to unsettle the euro on worries about political fragmentation. Instead, Scotiabank notes an absence of any meaningful market reaction to the outcome. Risk reversals, a gauge of how much traders are paying to hedge against a currency move in either direction, actually rose on the day, which the bank reads as a sign that the premium investors were paying for protection against euro weakness is fading rather than building.
With the economic calendar largely empty in the run-up to the ECB decision, that lack of a political risk premium has left the pair relatively calm, with traders instead focused on the policy divergence story and on incoming data.
Technical Picture: Scotiabank Sees a Marginally Bullish Setup
On the charts, Scotiabank describes the setup as neutral-to-bullish. The Relative Strength Index is bullish, it says, though only marginally so, hovering just above the neutral 50 threshold. The medium-term trend is bullish, with a clear recovery visible from the late-June low, while the broader, longer-term chart remains stuck in a flat trading range. The bank sees near-term support around last week's lows near 1.1580, with resistance seen as limited ahead of the 1.1680 to 1.1700 zone.
Live technical readings back up the constructive tone. The 14-day RSI currently sits at 57, comfortably in bullish territory without being overbought. The MACD line is essentially flat versus its signal line, with the histogram only marginally negative, a sign the pair lacks strong downside momentum. EUR/USD is trading inside its Bollinger Bands, with the 20-period band running from roughly 1.15 to 1.17 and the midline near 1.16. The pair sits above its 20-day, 50-day and 200-day exponential moving averages, confirming the broader uptrend, even as the 50-day simple moving average trades just under the 200-day line. The Average Directional Index reads 28, indicating the move has genuine trending strength rather than directionless chop, while the stochastic oscillator's fast line at 45 sits above its signal line at 40. Twenty-day support is pegged near 1.15 and resistance near 1.17, broadly consistent with Scotiabank's own 1.1580 to 1.1700 range, with the pivot point sitting at 1.16 and the 52-week range stretching from 1.13 to 1.20.
Separately, market commentary heading into the week has flagged that the ECB looks set to raise rates even as Donald Trump continues to push for lower US interest rates, that hawkish US rate-hike bets have also firmed up and supported the dollar broadly, and that EUR/USD has stayed sticky to its 20-day exponential moving average, all of which line up with the mixed but ultimately euro-supportive picture Scotiabank describes.
Other Currency Pairs and Oil Markets in Focus
Elsewhere in currency markets, AUD/USD sits above 0.7200 in the Asian session, near its highest level since May 14, as a rallying Japanese yen keeps the US dollar under pressure even against hawkish Federal Reserve bets and geopolitical tensions, while firming expectations of another Reserve Bank of Australia rate hike later this month add further support to the Aussie, though mixed Chinese trade balance data are capping gains. USD/JPY, meanwhile, fluctuates around 154.00 after rebounding from a six-month low struck below 153.00 earlier in the session; the bounce looks like a technical correction for now, since Japan's upbeat wage growth data and an upward revision to second-quarter GDP have cemented expectations of a Bank of Japan rate hike next week and continue to underpin the yen.
In commodity markets, diesel is telling a very different story from the calmer look of the broader oil market. The US diesel crack spread, the premium that ultra-low sulphur diesel futures command over WTI crude, recently surged above $100 per barrel for the first time, touching an intraday record of just over $102.00.
