The Euro (EUR) is up 0.3% against the US Dollar (USD) and a mid-performer among the G10, climbing to fresh local highs at levels last seen in late October. The outlook for relative central bank policy is dominating and markets are specifically focused on the prospect of a dovish Fed chair, implying USD weakness rather than EUR strength, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Bund/BTP spread narrows to 70bpts, a 15 year low

"The euro area’s final services PMI was slightly stronger than expected at 53.6 and the German release also delivered a modest surprise and a rise to 53.1. The French index remains fractionally above 50 (neutral) at 51.4."

"Recent comments from policymakers have leaned neutral/ hawkish with a focus on concerns about upside risks to underlying inflation. Finally, the euro area’s political situation continues to show signs of improvement with a notable softening in the bond market’s fragmentation. The bund/BTP (Italy-Germany) spread has narrowed to 70bpts, its lowest level since 2010."

"The EUR’s latest rally has delivered a push to the upper 1.16s at levels last seen in late October. An extension would target the mid/early-October highs in the mid-1.17s. Momentum is confirming the latest gains in spot and the RSI has climbed above 60, reaching levels last seen in mid-September. We look to a near-term range bound between 1.1620 and 1.1720."