Eric Theoret, FX Strategist at Scotiabank, sees room for an extension of the pair’s upside in the short term.
“Sentiment and relative central bank policy are providing support on shifting political risks in France following last night’s debate and expectations for the ECB as market participants consider policymakers’ comments regarding the sequence of normalization in the context of the negative interest rate policy. The 2Y Germany U.S. yield spread has narrowed nearly 20bpts since the March 9 ECB meeting, delivering considerable support to EUR. We view the shift in tone as being premature and continue to highlight Draghi’s focus on ‘subdued’ measures of underlying inflation. The sentiment was echoed by Bundesbank President Weidmann’s comments from Monday as he focused on ‘weak’ price pressure”.
“Momentum signals are bullish, DMI’s are confirming, and short-term MA’s are bullishly aligned. EUR appears set to reach the 50% retracement of the post-election drop (1.0821) and we highlight the absence of major resistance ahead of the 200 day MA at 1.0891”.