The lower end of the euro's trading range is also seen by some technicians as the neckline of a larger head-and-shoulder's topping pattern, which if broken projects toward $1.25. Based on current spot and volatility levels, indicative pricing suggests almost a 50% chance of testing the mid-January low near $1.26 here in the second quarter. 6. We have often found that the euro is sensitive to changes in the interest rate differential between the U.S. and Germany. In the past, a flare up in the European debt crisis has led to safe-haven flows into Germany, pushing down its interest rates and widening the differential in the U.S.'s favor. Although we have highlighted the risk of the re-emergence of eurozone tensions, growth differentials also seem to be fueling a widening of the interest rate spreads. The 10-year spread is at its widest level since mid-2010. The two-year differential is near its best levels since then, having risen from about 2 basis points after a seemingly dovish talk by Federal Reserve Chairman Ben Bernanke near the Ides of March to 17 basis points earlier Wednesday. 7. The correlation between the euro and the S&P 500 (60-day period on percent change) has fallen nearly in half from a record high in early December of 0.85 to 0.43 in late March. The correlation has begun stabilizing, as has the 30-day correlation. Short-term market participants should be prepared for a tighter correlation in the second quarter.