EURUSD interbank: tracking the spread, a sell on rallies

EUR/USD has shown some bullish signs of life, popping higher to challenge the 200-hour smoothed-ma in recent trade at 1.0639 with a high of 1.0631.

However, the euro is meeting a strong resistance line here initiated at the Feb highs of 1.0828 and the dollar is starting to consolidate the break below the DXY 101 handle and climbing higher. While the euro attracts safe haven and carry flows and finds a bid on status-quo EZ political news, the wide USD-supportive short-term rate spreads will remain a bearish factor for the euro's outlook. 

The euro tracks the German 2y spread like clockwork and has done so from 1.1140 when the spread was narrower at 1.45 to current spot 1.0615 with the spread widening and on the approach to 2.10 - thus unless there is a fundamental change from the ECB or Fed, this correlation will continue to drag on the euro and possible opening further fading opportunities on rallies. 

Bullish on the greenback - Scotiabank

Meanwhile, opinion polls around the French elections will dominate the markets in relation to the euro from now and indeed the euro has caught a bid on the back of centrist Macron closing the gap on the far-right’s Le Pen in first round voting intentions in the French presidential election. 

EUR/USD levels

Analysts at Commerbank remain bearish on the euro: "We look for the rally to falter ahead of the 20 day ma at 1.0651 and the 1.0686 3 month downtrend. We continue to target recent lows at 1.0352/40. Intraday a move sub 1.0545 should trigger further weakness. The market will remain directly offered below short term downtrend at 1.0686. Above here lies 1.0820/29, which represents the 50% retracement and the recent February high."