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EUR/USD: FOMC Minutes could challenge Euro's upward momentum

The single European currency after a three-day rally was a breather from the highs of December 2023 ( 1,1140 )  but so far without  upward break it.

Market speculation on the prospect of a rate cut by the Fed in September remains in play with the US currency its  under pressure against all major currencies.

Although the scenario for 50 basis points is less likely, there are many who are betting on such an eventuality, something that would shrink the interest rate differential between the dollar and the euro and possibly put the US currency under further doubt.

I would not buy such a scenario, betting more on the possibility of 25 basis points which is now fully discounted and in the wake of this decision we are very likely to see a decompression of the recent rise of the European currency with the US dollar gaining some ground.

Yesterday did not provide any surprises with the European currency taking advantage of the momentum of the previous days and  hit a high of 1,1130 which are the highest levels since December 2023.

The signs of fatigue that I have been waiting for since yesterday seem to be showing up today and ahead of the anounsment of Minutes from last Fed's meeting  it is very likely that investors will remain cautious and a further significant upside before FOMC Minutes may will be a difficult task for the European currency.

Today's agenda is followed by a two-day period with quite a few announcements of macroeconomic news which could give a better picture of  Fed's possible decisions, as well as speeches by President Jerome Powell.

I believe that the upward momentum of the European currency will soon be called into question. Speculative behavior on the prospect of interest rate cuts will slowly de-escalate, resulting in the US currency gaining some ground and for this reason with small conservative positions I would prefer to position in favor of the US currency near the 1.12 level.

Author

Vasilis Tsaprounis

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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