EUR/USD yields spreads support bearish bias - Scotiabank

Big swings on some of the key EUR crosses are not obviously affecting the spot rate. Absent any major data releases in Europe, markets have been left to trade the flows and technicals, said Shaun Osborne, Chief Strategist at Scotiabank.

Key Quotes

“EZ-US 2Y bond spreads are back to near recent peaks (136bps) and while the movement is spreads remains fairly limited, the USD’s yield advantage is considerable and, according to our models, suggest that EURUSD should be trading near 1.0625, all else remaining equal. At the very least, the USD’s yield advantage, and the increasing demand for USD funding evident in the EURUSD cross currency basis swap, should mean limited upside risk for EURUSD. We remain bearish.”

“EURUSD short-term technicals: bearish—Despite minor gains in the EUR yesterday and the intraday squeeze higher in spot, price signals remain negative. Even intraday signals look potentially bearish, with EURUSD rejecting levels above 1.1020 in fairly emphatic fashion. EURUSD’s minor rebound over the past day or so may have run its course and we expect weakness below 1.0995 intraday to signal renewed softness towards key support in the low/mid 1.09s.”