EUR/USD: Euro on defense mode but geopolitical risk could put the 1.0600 under challenge

The single European currency tries to react in the early trading hours of the new week and defend the level of 1,06 after Friday's sharp losses.

Last week ended with significant losses for the European currency as hot inflation in the United States and heightened geopolitical concerns drove the US dollar higher.

Iran's ultimatum to strike against Israel over the weekend sent geopolitical risk high, risk aversion was strong in stock prices, with the US currency benefiting as it is well known traditionally function as a safe haven currency.

Τhe situation seems to be complicated as on the one hand Iran sent the message as a response from Israel's latest attack on the Iranian consulate in Damascus but at the same time it implied that this response was the only one without seeming willing to escalate further. On the other hand Israel maintains a strict rhetoric, the war council of the state seems to decide to respond, but United States and European Union are trying to control the situation as a possible escalation could have unpredictable consequences for the stability in the region and the world economy.

On the prospects for a rates cut by the two main central banks for the time being appears to be erasing a divergence, as hot US inflation shifts bets on a possible rate cut by Fed towards to the last quarter of the year while on the other hand the three cuts from the ECB starting from June they gather very high chances.

Ηigher key interest rates and heightened geopolitical risks keep the US dollar in the spotlight for now. Ηowever, I maintain my assessment that the European currency will maintain reactionary behaviors on the table, something that has seemed to happen  the early trading hours of the new week as the pair has moved away from the 1,06 level moving just above the 1.0650 .

On today's agenda Industrial Production in  Eurozone and Retail Sales in US stand out and possible significant deviation from expectations could help the euro to react further or else the 1,06 level could be on risk of collapse.

My thinking of buying the euro near 1,06 levels with a view to some good reaction seems to be confirmed. Ηowever, the latest developments with the sharp rise in geopolitical risk make me reconsider this thought and not maintain the position in favor of the European currency near the levels of 1,06.

Αlthough I would prefer to wait for a wider reaction perhaps staying on hold due to the latest developments is the best idea.