EUR/USD: Euro remains in tight range but upcoming US inflation data may change the bets

The single European currency remains above the 1,09 level in a narrow range as Monday's very poor agenda did not favor taking any bets.

For the fifth day in a row the range was limited to 50 to 70 basis points with the single European currency currently defending the 1,09 level trying to develop a mild upside momentum.

The Middle East front continues to cause concern although there is currently no major escalation as Iran seems quite cautious to respond forcefully with a full-scale war with Israel.

The exchange rate remains sensitive to the prospect of a rates cut by Fed and  ECB. Some slight shift has been seen in betting lately as disappointing US jobs data has raised the possibility that the Fed will proceed with aggressive tapering with a hundred basis points by the end of the year.

However, there is a large range in the estimates with several major investment banks having different opinions with the range of variation starting from 25 basis points and reaching up to 125.

The landscape looks clearer on the European Central Bank's outlook as two cuts by the end of the year is the most widely accepted scenario.

As volatility in  Fed's estimates and outlook is the key feature, the next 2 days' announcements on producer and consumer inflation in US are awaited with great interest and any significant deviation from the estimates could dramatically change the bets.

The gap in the interest rate differential in favor of the American currency and the fragile economy of the eurozone remain the main weights in the effort of the European currency to develop a strong upward momentum easily breaking the critical levels of 1,10 - 1,12 to which it had climbed at the end of 2023.

No changes in my thoughts, I remain on the view that the last months fluctuation range between levels 1,06 - 1,10 probably with some quite sharp extensions will remain in play as the main scenario for the next short to medium-term period.