The Euro (EUR) has firmed a little overnight, with the Eurozone escaping the president-elect’s ire for now, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

EUR gains on relief trade

“Gains appear to be struggling to gain traction above 1.05, however, and while short-term spreads have narrowed slightly in the EUR’s favour over the past couple of sessions, the spread (in excess of 220bps for 2Y bond yields) remains close to the widest in around two years.”

“That spread will curb the EUR’s ability to rally significantly. Our fair value estimate for spot (based on real and nominal spreads plus equity returns) suggests equilibrium is 1.0433 currently.”

“The EUR is managing to sustain a relatively constructive tone on the charts after last week’s dip to, and rebound from, the low 1.03s. Spot has managed to push through and hold above short-term trend resistance at 1.0470 (now support) off the early Nov high for spot above 1.09. Gains may test the 1.06 area in the short run.”