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EUR/USD: Geopolitical risk keeps Dollar in the spotlight with 1.0500 level remaining as the next challenge

The single European currency is again under mild pressure, approaching the level of 1,0550 in the early hours of Wednesday, as although it climbed to the level of 1,06, it has not yet managed to secure prices above it.

In the last 3 days, the European currency has shown some signs of balance, it has managed to move well away from the critical level of 1.05, but concerns remain on the table regarding the euro's ability to reverse the downward trend.

With geopolitical risks at its highest levels in recent months and with yields on US government debt securities remaining quite attractive, the European currency has to face significant headwinds in its attempt to recover further.

US Treasury yields remain at high levels but showing signs of stabilization having retreated slightly from recent highs. 

10-y Treasury notes is just below the recent high of 4.50 level something that continues to support the US currency.

My assessment that soon we will see some decompression in yields remains, with a return to near 4.00 levels 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 remains.

Despite the signs of fatigue in the US dollar over the last three days, a new uptrend could return to the fore as the European currency, apart from some reactions, is currently struggling to show anything better.

Today's agenda is very poor in macroeconomic news but quite rich in statements by Fed and ECB officials, with those of President Christine Lagarde standing out.

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

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.

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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