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″.
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