The single European currency is on the edge of the 1,06 level on the morning hours of Tuesday as geopolitical concerns and the hot inflation announced in the United States last week remain in the foreground, driving the US currency higher.
The latest developments with Iran’s attack on Israel on Saturday night have increased geopolitical risk to high levels, risk aversion is reflected in international stock prices, with the consequence that the American currency is benefiting as it traditionally functions as a safe haven currency.
From Sunday onwards there is a significant effort by international diplomacy to contain and avoid escalation which could create uncontrollable situations for the geopolitical landscape and the global economy. However, markets remain nervous as all eventualities are possible.
In terms of the macro picture the latest development with the US consumer inflation announcement has significantly changed the bets with the possibility of a rate cut by Fed in June now quite remote.
On the other hand, the possibility of three interest rate cuts by the ECB remains on the table, which in perspective will widen the interest rate difference between the Fed and ECB.
In today’s agenda, the announcement of ZEW institutes on the sentiment of the European economy stands out, as well as the speech of Fed’s President Jerome Powell.
Maybe the reaction of the euro or the collapse of the 1,06 is on today’s agenda.
Although the sentiment is currently clearly favorable to the US currency I remain on my thoughts of buying the European currency maybe close to the 1.05 level.
