Euro: Why are French spread tensions capping the recovery against the US Dollar? – Scotiabank

Eurozone bond-market tensions are keeping the Euro (EUR) behind its peers, with Scotiabank strategists Shaun Osborne and Eric Theoret pointing to EUR/USD trading around 1.1212. Persistent social and fiscal pressures are evident in the elevated French OAT/Bund spread. Germany’s ZEW survey recorded an improvement in current conditions but weaker expectations. Scotiabank sees the Eurozone economy as still in a slow recovery phase, constraining the Euro’s (EUR) scope for gains.

Are bond spreads holding back the Euro?

"The EUR is lagging its major currency peers on the day, weighed down by tensions in Eurozone government bond markets. The 10Y OAT/Bund spread remains elevate, near 150bps, reflecting social/fiscal tensions in France."

"Germany October ZEW Survey reflected a solid improvement in the (still soft) Current Situation reading (-35.9 versus -44.5 expected and -47.1 in September) but some softening in the Expectations component (to 28.1, from 33)."

"The survey of financial professionals tends to be heavily weighted by market, rather than economic, developments but generally indicates the economy remains in “slow recovery” mode. "

"Neutral – The EUR is little changed on the day. Sentiment and momentum are soft, preventing the EUR from taking advantage of the generally weaker USD tone and leveraging the bullish impulse that developed on the weekly chart last week – at least for now. Intraday support is 1.1175/80. Resistance is 1.1275. "

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)