Vasilis Tsaprounis
Independent Analyst
The single European currency remains in the spotlight, climbing on fresh 5-month highs touching the level of 1,09, having recorded a stunning rise of almost 600 basis points in recent days with very small pauses.
The significant hopes that have arisen for the course of the European economy from developments in Germany with the announcement of a gigantic 500 billion euro infrastructure package, as well as the change in policy in the European Union regarding defense spending, have created a positive winds for the European currency and now levels close to 1/1 seem very far away.
Also, ''short squeeze'' behavior remains in play as several players who were in favor of the US dollar at much lower levels are ''anxiously running'' to close their positions at a significant loss, which drives the exchange rate higher.
The disruption caused by President Donald Trump with an impending fairly tough trade war combined with the possible change of policy in the Eurozone regarding debt and deficits have significantly changed the picture of the game with the European currency having found the opportunity to make significant gains.
However, i remain in my view that the probability that this cycle of strong upward trend is near at an end is quite high and since last week I have maintained a position in favor of the US dollar at the threshold of 1.08.
Until some weeks ago, the possibility of the interest rate gap in favor of the American currency widening was quite large, something that has now been removed from the table, but on the other hand, even if more limited, the interest rate gap in favor of the dollar is a reality, something that is expected to return to the agenda at some point and limit the dynamics of the European currency.
Today's agenda is very poor in macroeconomic announcements and the only thing that stands out is the meeting of the eurozone finance ministers, with the result that interest is limited to geopolitical developments and President Trump, who often find ways to surprise.
I maintain the view that the recent rally of the European currency will find signs of fatigue again and some larger correction will follow.
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