EUR/USD: Euro remains on hold at 1.1000 – 1.1050 level as central banks time approaches
|The single European currency is showing signs of balance in early morning trading on Tuesday after mild losses on Monday with investors remaining extremely cautious as ECB and Fed decisions near.
Yesterday's very poor agenda resulted in the range remaining tight with the euro however under slight pressure as Thursday's ECB meeting and a possible 25 basis point rate cut is high on the agenda.
Overall bets remain unchanged with most likely a 25 basis point rate cut this Thursday by the European Central Bank and next Wednesday on the 18th by the Fed.
However, there is considerable room for surprise as several officials from both central banks have expressed differing views.
I remind that the contraction of the labor sector in US acted as one of the catalysts that weighed on the US currency and drove the euro to significantly higher prices 3 weeks ago.
Let's not forget that in several statements Fed's President has sent the message that further cooling in the labor sector is not desirable and he could use interest rate cuts as a weapon to stop the increase in the unemployment rate and by extension to prevent a possible recession in US economy.
The possibility of an increase of 50 basis points is not the main scenario and if it happens it will be a shock event that will affect the US dollar very negatively.
Today's agenda included German inflation data which was announced earlier without surprise, while on the other side of the Atlantic there is nothing significant.
As we approach the European Central Bank meeting a wait-and-see attitude may be the best thought as any possible surprise carries the risk of major volatility.
My thought of buying again the US currency at some sharp peak near the 1.12 level or maybe even above this remains on the table.
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