The Euro (EUR) is trading cautiously after modest weekly gains versus the US Dollar (USD), supported by short-term interest rates and ECB communications. Momentum remains bullish as EUR approaches 1.18, setting the stage for potential further upside ahead of next Thursday’s ECB meeting, according to Scotiabank Chief FX Strategists Shaun Osborne and Eric Theoret.
Euro supported by ECB-Fed policy divergence
“The EUR is trading somewhat defensively into Friday’s North American session, giving up a small portion of its 0.7% weekly gain versus the USD. Recent overnight data have been limited to final CPI releases from France and Germany, which remained unchanged from preliminary prints. We remain bullish ahead of next Thursday’s ECB meeting, where President Lagarde is expected to maintain the 2.00% deposit rate, while delivering an upgraded economic forecast and a moderately more hawkish tone,” the strategists said.
Interest rate differentials provide fundamental support
“The outlook for relative central bank policy continues to support the Euro. ECB messaging remains constructive, in contrast with a decidedly dovish Fed. Interest rate differentials are climbing from deeply negative levels, providing EUR with fundamental backing. Short-term rates markets have only recently unwound their dovish bias and now price in modest tightening, with roughly 4 basis points expected by October 2026.”
Technical momentum confirms near-term strength
“This week’s gains have pushed the Euro to fresh two-month highs, confirmed by bullish momentum indicators. The RSI is approaching the overbought threshold at 70, and there is minimal resistance ahead of 1.18, a level that capped EUR rallies in both June and September. We expect the near-term range to trade between 1.1680 and 1.1780.”
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