EUR/USD neutral/bullish outlook – Scotiabank

Shaun Osborne, Chief FX Strategist at Scotiabank, reiterated the beutral/bullish perspective for the pair in the near term.

Key Quotes

“Spot is more than a big figure above yesterday’s low but the market is not – yet – rushing back to the long side of this trade. EURUSD 1 week risk reversals have moved significantly today as the tenor now cover the UK referendum aftermath. Pricing continues to reflect “crisis” concerns, with EUR puts priced 3.5 vols above similarly struck EUR calls – about the same premium seen in 2008. More broadly, and despite the slide in US short-term rates after the Fed, we note that EZ-US 2Y rate spreads remain comfortably USD-supportive around 128bps still. We see limited upside risk for EURUSD near-term”.

“From a chart perspective, yesterday’s sharp EUR rally and a solid bid for the EUR on dips to the low 1.12 area overnight suggest firm support on dips for the market for now. Yesterday’s big “doji” candle on the daily chart coming near trend channel support in the low 1.11s may have the makings of a more important base”.

“However, we still rather think there is firm resistance above the market at 1.1300 (where 50 and 55-day MA signals converge). Sustained gains through 1.13 would renew short-term topside momentum for a push on the 1.14/1.15 potentially”.