The European single currency is undergoing a mild correction after yesterday’s second attempt to break through the 1.09 level.
After Tuesday’s explosive rally in the wake of U.S. inflation data, the European currency has been trading between the 1.08-1.09 levels for the past three days, having largely digested these levels and is now looking for the catalyst that will lead to the next move.
Yesterday’s release of the U.S. weekly jobless claims figures, which showed a significant increase, temporarily cast doubt on the strong U.S. labor sector, causing the European currency to move relatively quickly back towards the 1.09 level, but without being able to breach it.
I would like to remind you that two days ago I mentioned that although the European currency has made an amazing surge and developed an upward momentum, approaching the level of 1.10 will not be an easy task and already the last two days have confirmed this thought, as the exchange rate is currently in a limited range of fluctuation and a new trigger will probably be needed to take the European currency to the levels of 1.10.
Although US Treasury yields have come off their recent highs, they have not lost their appeal as they continue to outperform their European counterparts.
The easing of inflationary pressures in the United States has come as a surprise and has all but eliminated the possibility of another rate hike, but some further confirmation in the macroeconomic data will be needed to draw clearer conclusions about how long policy rates will remain at current levels.
At the same time, on the other side of the Atlantic, the Euro-zone continues to move towards the edge of recession, and the course of the economy remains one of the main weights in the European currency’s attempt to maintain a strong upward momentum.
According to these data, it is quite possible scenario that the exchange rate remains relatively ”heavy”, struggling to develop strong directions and expecting surprises in the announcements as it happened last Tuesday.
On today’s agenda, the announcement of the course of inflation in the euro area stands out, and if there is a surprise, it is certain that it will have a significant impact on the course of the exchange rate.
In the absence of surprises and given the last day of the week, the pair is expected to remain in a narrow range of variation with the level of 1.08 but with the risk of breaking down.
I will remain on hold at these levels and will seriously consider changing my strategy to position myself in favor of the US currency at levels near 1.10.