The single European currency is measuring its strength and trading well below the 1.10 level in a calm tone after the amazing rally of the last 2 days following the Fed & ECB interest rate decisions, but mainly due to Fed’s President Powell’s statements that increased bets on the possibility that the central bank will cut interest rates much sooner.
The bullish momentum of the European currency was further supported as in similar statements yesterday by ECB President Christine Lagarde, there was no mention of the idea of lowering key interest rates, which has now brought to the table that the two major central banks have different rhetoric at the moment, something that clearly favored the European currency.
However, as the course of the European economy continues to be problematic and given that the prices of oil and natural gas will remain close to current levels, the possibility that the contraction of inflationary pressures will have a greater speed is present, so the rhetoric of the European Central Bank could change at any time.
On today’s agenda, the figures for the manufacturing and services sectors of the European and U.S. economies will be watched by investors, but without some significant surprise, it will be difficult to see a dramatic change in the exchange rate picture, especially in view of the end of the week.
The scenario that the European currency’s signs of fatigue remain on the table for today is quite possible, as after the two-day rally, the pair is expected to digest these levels with possible corrective behavior.
Let’s not forget that although the course of the key interest rates is the main catalyst that affects the exchange rate and at the moment the recent dovish tone of the Fed works in favor of the Euro, the problems of the European economy remain on the table and I believe that it is very difficult for the European currency today to continue the same bullish cycle of the last 2 days.
As the opportunity to buy the euro, which was my main focus in recent days, is now far away, I will maintain a wait-and-see attitude and consider opening a position in favor of the US currency after new highs well above the 1.10 level.
