Euro Retreats as Political Risks Rise and Fundamental Releases Remain Limited

The Euro has taken a step back against the US Dollar after its recent rally. According to Scotiabank strategists Shaun Osborne and Eric Theoret, the EUR is softer by 0.1% versus the USD. This decline comes on the heels of a nearly 3% surge from late July.

The strategists highlight that fundamental releases have been limited this week, with German IFO business sentiment figures scheduled for Tuesday being the key event. Yield spreads have pulled back slightly, which has eroded some support for the EUR as US Treasury yields have climbed over the past week or so.

Political risk is rising, with widening intra-euro area government bond yields and a blowout in the bundBTP spread. Market participants are also eyeing this week's French budget negotiations and polls showing solid potential results for far-right candidate Marine Le Pen.

Technically, EUR/USD remains bullish, but recent price action has revealed clear near-term resistance above 1.1700 following a notable break above the 200-day MA (1.1631). Scotiabank sees limited additional resistance ahead of 1.1800 and notes near-term support in the 1.1580/1.1600 area.