EUR surges to 1.14 before consolidating - Scotiabank

The Euro (EUR) tested the upper 1.08s Monday and traded to a three-year high above 1.14 earlier. It is notable that the EUR surge is happening against a backdrop of widening EZ/US spreads which would ordinarily be a negative factor for the EUR, Scotiabank's Chief FX Strategist Shaun Osborne notes.

Markets dump US assets

"But the huge movement in bond yields and spreads (the 2Y spread has widened 43bps since Monday) this week reflects a lack of confidence in US Treasurys and a haven bid for German Bunds and, therefore, the EUR. The EUR is backing off its intraday high on the USD above 1.14 but the drift reflects a pause or consolidation in the rally rather than a reversal at this point."

"In fact, the bull trend in the EUR looks firmly established across short-, medium and long-term studies, suggesting minor dips (low/mid 1.12s perhaps) are a buy and more EUR gains will develop in the medium term. Solid EUR gains above 1.12 this week suggest the EUR is potentially heading to a new, higher range between 1.17/1.22."