The single European currency continues the upward momentum and tries to secure levels above 1,06 having moved away from the last lows of 1,0450 noted last week .
After Monday’s initial shock the markets seem to have largely moderated the impact from events in the Middle East and positive sentiment has returned to international markets.
Limiting the climate of uncertainty limits the need to buy dollars which traditionally functions as a safe haven currency.
At the same time, the messages we’re getting from Fed officials are that the rate hike cycle is likely over, and the chances of another 25 basis point increase so far appear slim.
Τhe evolution of the exchange rate in the last few days broadly confirmed my thinking as expressed in previous articles as I had a strong view that soon the reactionary behavior of the European currency would come back to the table.
While there are prospects for this reaction to continue, but it will depend on the economic data that we expect today and tomorrow, as there are inflation indicators on the agenda as well as the minutes from the last Fed meeting where there may be clearer messages for future intentions.
However, the Middle East front remains active and the risk of escalation is always on the table, so any predictions at this time are risky.
However, the main scenario with the greatest probabilities moves along the axis that it will be very difficult for there to be an involvement in the war front of other Arab states, with the consequence that the Israeli army will be able to close this development very quickly, but perhaps not in the mildest way.
Ιn parallel, the latest pressures received by the international stock markets but also the short reaction reminds us that global liquidity remains at high levels and any strong and sharp dives simply provide the opportunity for repositioning in equitys from large portfolios.
The general feeling I have is that the exchange rate is likely to digest these levels and I remain closer to my main view of buying back the European currency to another possible sharp dive near the previous lows of 1.0450.
