EUR/USD is holding close to last week’s high, supported by some further narrowing in EZ/US spreads as US yields retreat. The 2Y gap has narrowed to –195bps, the narrowest since early November, Scotiabank's Chief FX Strategist Shaun Osborne notes.

Lower US yields compress spreads

"Germany’s IFO survey reflected a small improvement in the business climate reading for January while expectations eased slightly, reflecting an economy that continues to languish." 

"Solid EUR gains through the low/mid 1.04 area last week are supporting a more positive technical undertone, at least in the short run. A deeper retracement of the EUR’s Q4/Q1 slide towards the 106 area (38.2% retracement resistance sits at 1.0572) appears likely. Support is 1.0450/55."