EUR/USD: A stormy week ahead

The European currency is trading in a limited range below the 1,09 level during the first hours of the new week. Which is expected to be very hot as the two main central banks will decide for the level of interest rates.

On Wednesday the US Federal Central Bank and then on Thursday the corresponding European one will announce after a meeting their decision on the increase in interest rates which is quite expected and perhaps quite '' priced in " from the market.

So far, the mood of the market is based on an aggressive rhetoric of the European Central Bank and a much milder one from the Fed, and as it is obvious , any differentiation is capable to give strong directions to the exchange rate.

Of course, before Wednesday there is quite a rich agenda of economic news like today's on the development path of the German economy and Consumer confidence in the eurozone.

As the German economy is one of the main engine of the European economy It is understandable that there is considerable sensitivity to this news.

Market behavior confirmed my thinking as it was captured last week, the European currency indeed showed signs of fatigue and failed to secure the 1,09 level. The positions in favor of US currency at peaks as was my proposed idea indeed it did not disappoint.

We have now entered a critical week where developments with interest rate hikes are capable of breaking significant levels and taking the market away from the narrow range it has been in for the past two weeks.

However, as the market has discounted the aggressive rhetoric of the European Central Bank at high rates, I believe that the exchange rate is quite exposed at current prices and a further correction from these levels gathers increased possibilities.

At the same time, the new week has found the stock markets in a correction mood, something which, if it takes a further extent, is expected to strengthen in turn the American currency, which traditionally functions as a safe haven currency.