EUR firmer on rising domestic yields – Scotiabank

The EUR has found a solid bid on the back of rising long-term yields as investors consider the potential for heftier government borrowing in Europe to bolster defence spending, Scotiabank's Chief FX Strategist Shaun Osborne notes. 

EUR still trades well below FV

"The EUR has found a solid bid on the back of rising long-term yields as investors consider the potential for heftier government borrowing in Europe to bolster defence spending and nudge a higher in short-term yields on the back of stronger than expected preliminary Eurozone inflation for February (at 0.5% M/M and 2.4% Y/Y), Scotiabank's Chief FX Strategist Shaun Osborne notes." 

"EZ/US 2Y spreads have narrowed to –194bps, the narrowest since late January. Spot continues to trade quite significantly below our short-term FV estimate (1.0744 today)." 

"Solid gains intraday so far suggest firm support for the EUR around the upper 1.03 zone (40-day MA at 1.0393) and the potential for spot gains to extend to the low 1.05s (100-day MA at 1.0512, recent peaks around 1.0530)."