EUR/USD vulnerable to weakness over the medium-term - Scotiabank

EUR strengthened on Monday in response to the improvement in sentiment surrounding the UK referendum. However, Eric Theoret, FX Strategist at Scotiabank notes that EUR appears to be trading in tandem with levels implied by yield spreads, and highlights its vulnerability to weakness over the medium-term.

Key Quotes

“EUR is up 0.5%, strengthening in response to the improvement in sentiment surrounding the UK referendum. The broader tone is likely to remain dominant into the end of the week, and risk reversals suggest a steady moderation in the premium for protection against EUR weakness across longer time horizons. EUR appears to be trading in tandem with levels implied by yield spreads, and we highlight its vulnerability to weakness over the medium-term as we consider the Fed’s policy outlook in light of the UK referendum’s outcome.”

“EURUSD short-term technicals: neutral-bearish—EUR has already faded the bulk of its short-lived rally to an 8 session high, finding resistance around 1.1380. Momentum signals are neutral and trend indicators are muted. We look to a return back below the 50 day MA (1.1298) toward the 100 day MA (1.1232).”