The Euro to Dollar (EUR/USD) exchange rate was unable to hold above 1.19 on Wednesday with the dollar securing a net recovery after stronger than expected US jobs data.
Scotiabank expects a near-term EUR/USD trading range of 1.1850-1.1950.
The bank, however, remains bullish on the underlying outlook and expects a break above the 1.20 level with a potential longer-term focus on the 1.22/2250 area.
US non-farm payrolls increased 130,000 for January compared with consensus forecasts of around 65,000 while the unemployment rate edged lower to 4.3% from 4.4%. The data dampened expectations of a further Fed rate cut before mid-year.
The bank, however, noted that there has been an underlying shift in yields with a renewed narrowing in the spread between US and German 2-year yields. Given that this metric is a key driver of currency moves, this is potentially bullish for the Euro.
Scotiabank also notes that there has been further evidence of single-currency demand in options markets with increased buying of protection against further Euro gains.
There are, however, substantial long Euro positions amongst speculative accounts and the bank also notes that rhetoric from ECB officials will need to be watched closely.
