Despite an early-morning plunge to 1.4815, the Euro managed to recover during Tuesday’s US trading session and as of the NY close, EUR/USD was successfully holding above the 2007 highs near 1.4880/1.4900.
However, overnight index swaps are still pricing in over 25bps worth of rate cuts by the European Central Bank and over 75bps worth of rate hikes by the Federal Reserve within the next 12 months. As long as the markets are betting on such interest rate probabilities, EUR/USD will have difficulty accumulating substantial gains. Event risk for the pair is contingent upon the previously mentioned US data on Wednesday, but caution should be paid to Thursday’s Euro-zone releases as GDP and CPI have the potential to shake the Euro up significantly. Until then, [B]my fundamental bias for the Euro on Wednesday is bullish[/B]. Looking at the daily EUR/USD charts, the long lower wick on Tuesday’s candle suggests the pair may have hit a short-term bottom.