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In opinion of FX Strategists at Scotiabank, the current recovery could lift spot to the 1.1600 region.

Key Quotes

“French and Italian Industrial Production advanced more strongly than expected in Aug (+0.3% and +1.7% M/M respectively) while the Bund/BTP spread narrowed by some 25bps from yesterday’s peak (to +291bps) to provide some lift for the EUR. Gains extended through the 1.15 area, where markets had expected heavy, option-related supply, before gains stalled and eased back. Italy remains a concern for markets as domestic budget plans still risk prompting a clash with the EU and might well trigger sovereign ratings action but a fair amount of bad news is already priced in to the EUR here we feel and scope for additional weakness may be limited for now”.

EURUSD losses only extended very slightly yesterday before the market steadied and started to recover back towards the session’s opening levels. Price action left a bullish doji candle on the daily chart. Intraday price action suggests good demand for EUR on dips to the upper 1.14s and we spot resistance now at 1.1520/25. We think the EUR squeeze higher may extend a little more above here towards 1.16″.