Scotiabank: Growth of the euro will be limited to 1.1250

Despite the fact that the euro is rising, strategists at Scotiabank say that its progress will most likely be limited above 1.1250 and short-term technical outlook remains bearish.
Analysts believe that the euro is increasing in response to better-than-expected data on Ifo business index in Germany. The differences in the policies of central banks are likely to be dominant guide this week for the euro, as analysts expect few public appearances of ECB President Mario Draghi ahead of the awaited data on the consumer price index of the Eurozone CPI on Friday. Inflation is expected to rise to 0.4% yoy.

The spread between two-year bonds in Germany and the US remains high and there is a risk of expansion to levels, last seen in 2006. The ratio of risk for the euro is shifting downwards. Short-term increases in EUR/USD is likely to be limited above resistance level 1.1250, which served as a deterrent to the progress of the euro during most of September, analysts say. They look forward the pair to fall back to 1.1150.