EUR/USD points to further downside – Scotiabank

Shaun Osborne, Chief FX Strategist at Scotiabank, has reiterated the bearish outlook on the pair in the short-term.

Key Quotes

“Spot is almost exactly two big figures higher from this time Friday, thanks to the soft US employment report and the slide in Eurozone-US spreads that followed the softening in US yields. The 2Y bond spread has steadied around -130bps but that is still some 15bps narrower than the peak premium for US yields last week”.

“That remains a strong source of support for the USD, however, and our modelling suggests that the USD remains still quite significantly undervalued relative to the EUR following the recent shifts in spreads. Our fair value model implies and equilibrium level of 1.0580 this morning”.

“The market has not advanced at all since the spurt higher on short-covering Friday. Markets appear reluctant to push the EUR rally, perhaps reflecting worries about the GBP pulling the EUR lower. Short-term price action looks soft, in fact, in our opinion after two stalls in the upper 1.13s (minor double top potential at 1.1370). A break under 1.1325/30 intraday should see the EUR slip back to the 1.1270 area at least”.