Short-term EZ-US rate spreads have narrowed over the past week, with the 2Y spread reaching –155 bps, supporting EUR gains. But spreads will have to narrow further still to lift the EUR meaningfully and make a run above the 1.11 zone. Soft US inflation data may be the catalyst.

EUR/USD is within reach of the 1.1095 April high but there is little reason to expect spot gains to stop there. A push higher to 1.12/1.13 is a growing risk.