EUR/USD risks a test of 1.1715 near term – Scotiabank

FX Strategists at Scotiabank remain bearish on spot in the short-term horizon and suggest the probable visit to the 1.1715 level.

Key Quotes

“EURUSD remains under pressure as rising US yields continue to force short term spreads wider (Eurozone-US 2Y spreads are at a new, record wide of 316bps). Even if you do have a bearish view of the outlook for the USD, like we do, the cost of carrying a short USD position is very expensive at the moment and without fundamental justification – or an obvious crack in the widening trend for spreads – investors are unlikely to fight the momentum at the moment. Risk reversal pricing reflects bearish sentiment, with the 3M premium for EUR puts over calls widening to 0.4/vol, the widest in a year”.

“There is no sign that the EUR sell off is reversing but there is some evidence from the short-term chart that the market sell-off may be slowing in the short run at least. Heavy net selling on the week may also be a sign that the long liquidation trade may be nearing a climax. Intraday prospects for the EUR only improve above 1.1835 from here. Broader risks still seem tilted towards a test lower towards the late 2017 low around 1.1715”.