EUR trading defensively on weaker German IP – Scotiabank

The Euro (EUR) is soft, down 0.3% against the US Dollar (USD) on the back of a weaker than expected industrial production release from Germany, Scotiabank’s Chief FX Strategists Shaun Osborne and Eric Theoret report.

EUR risk reversal remain weak

“The 4.3% August decline is delivering fundamentally driven weakness for the EUR, reflecting a slight softening of ECB rate expectations. The shift in EUR drivers is welcome, given that recent EUR weakness has been driven by sentiment and concerns related to the political situation in France.”

“Outgoing PM Lecornu has made little progress in his latest attempt at coalition building, however markets appear to have calmed somewhat with a notable narrowing in the France-Germany 10Y yield spread. EUR risk reversal remain weak, and are now pricing a slight premium for puts over calls.”