EUR/USD: Euro so far successfully defending the critical level of 1.0500 but risk of collapse remain high

The single European currency remains above the critical level of 1.05 with investors being conservative enough to take further large bets in favor of the US currency, but on the other hand, so far there is no catalyst on the table that is capable of changing the trend.

For almost the sixth consecutive day, the pair is trapped between levels 1,05 - 1,06, trying to digest these levels looking for the trigger for the next move.

Yesterday, without providing any significant surprises from several statements by Fed and ECB officials, kept the American currency in the spotlight as geopolitical risk remains at extremely dangerous levels.

Although there have been some attempts to de-escalate the feeling that we are heading into uncharted waters with the possibility of a world war on the table, geopolitical risk continues to affect the exchange rate, supporting the US dollar, which, as is well known, traditionally functions as a safe haven currency.

Signs of stabilization in US Treasury yields with the 10-year bond trading near the 4,40 level, showing signs of fatigue.

No changes in my assessment that soon we will see some decompression in yields, with a return of 10-y note near to 4,00 level being a likely scenario.

A possible de-escalation in the level of US yields is expected to provide significant relief to the European currency and room for further correction.

Although there are still reasonable chances of 25 basis points rates cut by Fed on December,  the bets on this scenario have been significantly reduced, reflecting fears that the specter of inflation in US remains.

Despite the signs of fatigue in the US dollar over the last days the European currency, apart from some reactions, is currently struggling to show anything better.

Without some support or other catalyst, the European currency could fall further and the 1.05 level could be collapse soon.

No changes in my thoughts, I maintain a somewhat conservative approach. I would prefer to bet on a scenario of a correction of the European currency to some new dips and I would feel more comfortable positioning myself in favor of the euro at levels much lower than 1,05.