EUR/USD continued its fall below 1.10 but the EUR’s undertone looks soft, Scotiabank’s Chief FX Strategist Shaun Osborne notes.  

Dovish ECB and soft techs point to weakness

“EUR/USD losses have steadied below 1.10 but the EUR’s undertone looks soft amid a sharp widening in EZ/US spreads (by around 40bps for 2Y cash bonds) since the middle of September amid weak Eurozone activity and softening inflation. ECB Vice President Villeroy said the central bank will ‘quite probably’ cut rates again this month.”

“The EUR is likely to remain soft ahead of the ECB decision on the 17th. EURUSD losses have slowed around the 1.0950 point and short-term price action suggests a potential (minor) low may be developing.”

“Still, the bigger technical picture suggests that, after repeated failures around the 1.12 area over the past few weeks, the loss of support at the 1.10 point (the low between the tests of 1.12 and now resistance) has triggered an effective double top which points to losses extending to the 1.08 area in the next 1-2 months.”