The EUR remains stable during the session, according to Scotiabank’s Chief FX Strategist.

Narrower spreads have contributed to some support for the EUR, as European spending prospects are expected to improve amidst calls for increased defence expenditures. Short-term spreads between the Eurozone and the US have decreased to approximately -200 basis points, a reduction of about 25 basis points since the beginning of the month.

European stock market performance is relatively strong compared to the US, indicating moderate upside potential for the EUR towards 1.06, with fair value estimated at 1.0626. However, resistance at 1.0530 has limited the EUR’s upward movement, maintaining a focus on range trading around 1.05, where support is found at 1.0430 and stronger support at 1.0385. A breakthrough above 1.0530 could target 1.0650 to 1.0750.

What we’re seeing here is a stabilised euro, which is being reinforced by narrower rate spreads and a more favourable outlook for European fiscal policy. With discussions about increasing defence budgets, there’s a reasonable expectation that government spending will boost growth prospects. That, in turn, provides backing for the currency. The short-term rate difference between the Eurozone and the US narrowing by around 25 basis points this month suggests changing dynamics in monetary policy expectations.

Shaun notes that European equities have been holding up well, at least in comparison to those in the US. This relative strength offers a pathway for the euro to potentially appreciate further, edging towards 1.06. However, the stiff resistance at 1.0530 has kept gains in check, leading to more of a range-bound market near 1.05. Support is found just below at 1.0430, with stronger buying interest emerging around 1.0385. If momentum builds and the euro manages to clear 1.0530, there’s scope for an advance towards the 1.0650–1.0750 area.

For those involved in derivatives markets, this means careful monitoring of technical levels is essential. If 1.0530 fails to hold back further appreciation, positioning for a move higher could be warranted, particularly as overall financial conditions appear somewhat supportive. On the other hand, if resistance remains firm and support near 1.0430 starts to give way, there may be opportunities in the opposite direction. Understanding precisely where price action is consolidating or breaking out will be key in navigating the coming weeks effectively.