EUR/USD: ECB's and President Lagarde day, strong volatility may in pipeline

Τhe single European currency remains in corner having retreated near the 1,0850 level to 12-week lows in anticipation of the European Central Bank meeting and President Lagarde speech.

Τhe strong challenge that the European currency has received in the last three weeks remains on the table, although at a much milder pace in recent days.

As the bets for another 50 basis points cut by the Fed are almost nil the prospect of today's 25 basis points cut by the European central bank keeps the interest rate gap in favor of the US currency in play.

Yesterday was without any surprises and kept broadly the same picture with the European currency losing further ground with little reaction.

The interest of investors remains fully focused on the prospect of a reduction in interest rates from  ECB on today's meeting  as the range in the interest rate gap will largely determine the course of the exchange rate.

As the 25 basis points decision is relatively discounted, much of the interest is shifting to President Lagarde's upcoming speech with focus of some possible  fresh signals on the European Central Bank's next moves.

Today's Ecb meeting temporarily overshadowed the developments on the Middle East front with possible escalation remaining a major risk, while further concern could cause a further escalation in the Asia region between China and Taiwan.

In any case geopolitical concerns remain high on the agenda, which supports the US dollar, which traditionally functions as a safe haven currency.

On today's agenda in addition to Ecb meeting which certainly monopolizes interest, Retail Sales and the weekly Initial jobless claims in US stand out.

The decision of the European Central Bank but mainly the speech of president Christine Lagarde could significantly increase the volatility with a level of 1,08 being the next challenge.

I prefer to  remain on hold and my attention is now focused on the prospect of buying the European currency,  maybe near to the 1.08 level as the US currency's recent rally may will show signs of fatigue, especially if there is no any big surprise in today's ECB meeting and Lagarde's speech.