The European currency is trying to defend 1,08 level as in the wake of the announcement of US Personal Consumption Expenditures Price Index yesterday Fed officials kept on the table an aggressive rhetoric and now any cut in key interest rates before the summer is very difficult to happen.
As the prospect of the key interest rate cut by the Fed recedes, the US dollar is more likely to remain in the spotlight as the interest rate differential continues to remain clearly in favor of the US currency and combined with concern over the course of the European economy the euro beyond the very good reaction behaviors will struggle to develop a strong upward momentum.
Yesterday’s very rich agenda did not bring to the table any big surprise but the reminder and the persistence of inflationary pressures in US acted as the catalyst for the US currency to find itself in positive territory for the second day in a row.
Today’s agenda is quite rich as well with consumer price index in Eurozone and the path of manufacturing sector in the US standing out.
The overall market picture remains the same with the exchange rate held in a narrow range with the characteristics of very ”heavy” pair remain on the table.
However, as I mentioned in yesterday’s article the excessive compression that characterizes the pair in the last period significantly increases the risk of a strong and sharp decompression which together with the execution of stop loss orders, will drive the exchange rate quite far from the current levels.
As the chances about which direction this will happen are quite divided, I would prefer as a basic strategy after this event to think about some placement.
While I prefer not to take position in favor of the US currency at these levels the prospect of the 1,08 level receding and the exchange rate to approach 1,07 again remains on the table.
Today’s rich agenda and if will be some surprises it is capable of creating significant volatility in the exchange rate.
