Euro strengthens amid broad USD weakness – Scotiabank

The Euro (EUR) is strong, up 0.4% vs. the US Dollar (USD) and a mid-performer among the G10 currencies in an environment of broad-based USD weakness, Scotiabank’s Chief FX Strategists Shaun Osborne and Eric Theoret report.

EUR supported by stabilizing euro-US yield spreads

“Data releases have been limited to second-tier confidence data and comments from the ECB’s Muller have leaned neutral-hawkish speaking of higher rates over the next few years. Euro area-US yield spreads are showing signs of stabilization, offering the EUR some fundamental support following their recent narrowing over the past week.”

“The EUR/spread correlation is recovering sharply, suggesting a return to fundamentally-driven movement. Risk reversals are also showing signs of stabilization, offering additional sentiment-related support following an equally erosive pullback. We remain medium-term EUR bulls targeting 1.18 by the end of Q1 and 1.22 by the end of 2026.”

“The EUR’s latest recovery is important, delivering a welcome bullish reversal to deny an extension of Friday’s close below the 50 day MA (1.1654) trend level. The 50 day MA is important, having offered alternating support and resistance over the past year. We see the local range as being defined by 1.1620 support and 1.18 resistance. We look to a near-term range bound between 1.1650 and 1.1750.”