The EUR is benefitting from the softer overall USD tone and market focus on the likelihood of increased European government (defence) spending to extend its recovery back through low 1.05 area where EUR gains have been capped so far this year, Scotiabank's Chief FX Strategist Shaun Osborne notes.

EUR has room to extend

"Recall that the EUR remains quite significantly below our modeled short-term fair value (1.0845) amid narrowing EZ/US rate differentials and relatively stronger European equity market returns in recent months. There is some runway for the EUR to strengthen."

"Spot gains through 1.0530 this morning are bullish. EUR gains have been capped in the low 1.05 zone since January and this morning’s gains not only break the recent range ceiling but also the 100-day MA (1.0509). Assuming EUR gains hold through the close, the advance points to further EUR gains to the 1.0650/1.0750 range (200-day MA at 1.0722)."