EUR/USD at risk of further, significant weakness near-term - Scotiabank

EUR/USD is at risk of further, significant weakness near-term towards 1.01, according to Scotiabank analysts. The technical view remains bearish, while they note widening in EZ-US short-term rate spreads continue to favor the USD.

Key Quotes

“EURUSD is down more than two cents from this time yesterday, buckling under the weight of a significant widening in EZ-US short-term rate spreads.  After the ECB added to its QE programme last week, the Fed tightening and more-hawkish outlook for US rates in 2017 makes the central bank policy divergence story even more powerfully supportive of the USD.”

“The 2-Year EZ-US spread at –205bps represents the biggest yield premium for the USD since the late 1990s and something investors cannot ignore as a driver of further USD strength. Stronger than expected EZ PMI data today was of no help to the EUR.”

“EURUSD short-term technicals: bearish—EURUSD’s technical position has been negative recently and has deteriorated significantly in the past 24 hours. Spot has dropped below support in the upper 1.04/low 1.05 range and this puts the EUR at risk of further, significant weakness near-term (towards 1.01).”

“Trend strength oscillators are aligned bearishly on the short and medium term studies and are leaning bearish on the longer-term readings. Expect EURUSD bounces to be relatively shallow and short-lived."