EUR/USD: Dollar's counterattack comes on the game

Vasilis Tsaprounis Independent Analyst

The single European currency appears to be paring its gains significantly as it has returned more than 150 basis points from yesterday's highs at 1.0930.

The developments following the statements of Fed's Chairman on Wednesday night with a change of rhetoric to a softer tone regarding future interest rate hikes led the European currency to a strong temporary upward momentum , which however, again showed signs of fatigue.

As i mentioned in yesterday's article one of the important catalysts which could limit the further rise of the European currency could be the pressures on the international stock markets which traditionally usually favor the US dollar as it acts as a safe haven currency.

Indeed, although at the opening of the day the upward momentum of the European currency appeared to create prospects for continuation, later in the day the return of concern to the International financial markets put pressure on the stock markets and at the same time the European currency.

The latest crisis in the banking sector of the United States proved to have scared the fed but also created significant barriers to be able to lead the stock market indices easily to the upside.

Nevertheless It is typical that every time the stock prices are at some lows , relatively quickly there are reactions with the consequence that for the moment the downward course is limited .

That brings back to the fore my thought that the liquidity in the markets remains at a high level and every dip on the stock markets guides to placement opportunities.

This behavior has quite a large correlation with the course of the exchange rate of the euro with the dollar as accordingly whenever there are strong pressures on the European currency relatively soon it shows the ability to react which as it has been proven and I have mentioned it several times , continues to be in the game with great fidelity.

Today's agenda is quite interesting with data on the path of manufacturing activity and the services sector in the Eurozone and the United States standing out.

Some surprise in the announcements will certainly have some impact on the exchange rate as interest rate hikes create new data on the particularly fragile economies of Europe and the US.

Ιn general although it seems difficult for the European currency to recover the strong upward momentum of previus days on the other hand the pressures it already receives and have found it well below the level of 1,08 it would be difficult to continue with the same momentum and the possibility to find again levels of reaction is increased.

A range between the 1,0720 and 1,0850 levels with some limited deviations is a fairly likely scenario for the continuation of the day.

Author

Vasilis Tsaprounis

Independent Analyst

Vassilis Tsaprounis possesses over 25 years of professional experience in Capital Markets and especially in the foreign exchange market.

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