Scotiabank’s Analyst Team has observed a moderate uptick in the Euro compared to the Dollar, although it is not keeping pace with other G10 currencies. Current market sentiment and options pricing indicate a preference for upside protection, suggesting cautious optimism among traders.
The analysts point to supportive yield spreads between Germany and the U.S. as a contributing factor to this sentiment, alongside a favorable technical backdrop for the Euro. They foresee limited resistance levels before reaching the psychologically significant 1.20 mark. Further potential resistance is predicted at levels of 1.2080 and within the range of 1.22 to 1.2250. In the near term, the Euro is expected to trade within a range of 1.1850 to 1.1950.
A notable aspect of this analysis highlights the prevailing mood in the market, particularly in the absence of significant economic data. The options market has been adjusting, reflecting a substantial premium for protection against upward movements of the Euro. This trend has resulted in risk reversals nearing their highs observed in late January, indicating heightened expectations of potential Euro appreciation.
Moreover, the outlook concerning relative central bank policies remains a cornerstone of support for the Euro. The analysts note that the two-year yield spreads between Germany and the U.S. have continued to recover, posing a threat to break the multi-year highs recorded in December.
On a technical note, short-term indicators for the Euro to Dollar exchange rate appear bullish, with momentum data showing an RSI (Relative Strength Index) just below 60. As traders navigate this landscape, the Euro’s prospects hinge on both macroeconomic factors and market sentiment, suggesting a cautiously optimistic outlook as it approaches key resistance levels.
