EUR/USD struggling with the burden of widening rate differentials  - Scotiabank

EUR is still struggling with the burden of widening rate differentials versus the USD, said Shaun Osborne, Strategist at Scotiabank. He adds that technical view is negative with minor EUR gains being a sell.

Key Quotes

“Eurozone industrial output rose a little more strongly than expected in August (+1.6%), reversing the weakness seen in July (revised a little better to -0.7%). Trends may be stabilising after a weak run of output data but broader growth trends remain soft. The data failed to help the EUR which is still struggling with the burden of widening rate differentials versus the USD. The 2Y yield gap is a fraction wider this morning at -154bps, the widest in 10 years.”

“EURUSD short-term technicals: negative—The technical undertone remains negative. EURUSD has lost key support levels over the past week (in the low/mid 1.11 area especially) and is threatening to crack key weekly support (on weekly close basis) in the upper 1.10s.”

“Bear trend strength oscillators are strengthening on the shorter-term studies and medium terms signals are starting to align with these signals, suggesting a sustained move lower may be developing (see bottom chart). Counter-trend corrections are liable to remain shallow and short-lived in these circumstances. Minor EUR gains are a sell.”