Euro: Bullish trend eyes upper 1.17s against US Dollar – Scotiabank

EUR/USD: Moderately bullish, but vulnerable to a USD-driven reversal

The key market implication is that Scotiabank views the recent euro strength as primarily a US-dollar weakness trade, reinforced by narrowing short-term US–euro-area rate spreads—not as a broad, independently driven improvement in euro-area growth prospects. That makes the bullish outlook dependent on continued dollar softness and stable or improving expectations for relative policy rates.

A sustained break above the 1.1625–1.1650 area improves the technical structure and exposes the mid-to-upper 1.17s, with 1.1793 identified as an important retracement resistance zone. The cited support region at 1.1600–1.1625 is therefore the near-term pivot: holding above it would preserve bullish momentum, while a failure back below would weaken the breakout and increase the risk of a false move.

For traders, the principal transmission mechanism is the US rate and dollar channel. Further narrowing of front-end yield spreads, softer US policy expectations, or renewed concerns about US policy credibility could support EUR/USD and other dollar crosses. It could also be broadly constructive for gold and risk-sensitive currencies if the move reflects declining US real yields and reduced demand for dollar liquidity. Conversely, a rebound in US yields, stronger US data, or a hawkish repricing of Federal Reserve expectations would challenge the euro advance even if euro-area data remain stable.

The stronger-than-expected German producer-price reading may offer some support to euro-area inflation expectations, but it is not sufficient on its own to establish a durable ECB tightening impulse. If higher producer prices are interpreted as a margin or growth-cost shock rather than demand-led inflation, the effect on the euro could be limited or even mixed.

Market bias:

bullish in the short term above 1.1600/25, with upside momentum targeting the upper 1.17s. The medium-term outlook is less certain because the move appears heavily dependent on broad USD direction. Traders should monitor US front-end yields, Fed expectations, incoming US data, ECB communication, euro-area inflation indicators, and whether EUR/USD can consolidate above the former 1.1625/50 resistance rather than merely spike through it.