A day before the meeting of the European Central Bank meeting and in the middle of unpredictable geopolitical crisis in Eastern Europe, the currency markets are not having strong and clean direction. The EUR is under pressure due to the instability in Ukraine on East and still growing debt crisis on South. The European currency lost 30 pips from its price during the last trading session in Europe, but still the level of the pair EUR/USD is quite high. According to many analysts the EUR is overvalued right now, as the low inflation and the reduced demand in the European Union are still problems for the Central Bank. The unemployment reports from Spain surprised the markets, but the country still have problem with young people unemployment rates, which remain higher than the usual trends. With all these factors the EUR is under strong pressure and cause large shocks during the week.
On tomorrow’s meeting of the European Central Bank should comment and consider changing of the monetary policy. The low inflation, which is still under the target level and the decreased demand of the consumers may lead the bank to change its key interest rates. However, such actions will be too hasty and will reflect negatively over the the European Currency. Even to keep the interest rate unchanged the EUR will stable enough, because of the fears from cleavage of the European Union. After the fiasco in Ukraine, one neglected and forgotten topic was about the referendum in united Kingdom for leaving the European Union. If one of the strongest economies and financial centers in Europe cleave from the Union, this will raised many questions about the stability of the currency and economy.
Also another missed fact from this week’s events was the meeting of Bank of England about the key interest rate of the country and the financial incentives. According to many analysts there is no reason the bank to change its interest rates, but may consider some improvements in their financial policy. Any changes in Bank of England will reflect the EUR and may be speculated about the possible cleave from the European Union.
On the other side of the pair EUR/USD is standing a giant economy with interests worldwide, which recovered from the crisis and which business is gaining speed. The USA is far away from the crisis in Ukraine and any interventions will be far away from its borders. Also the country is passive participant in the dialog, so its currency is free and can gain speed. The only problem for the USD might be the new plans of Obama and Republicans for the budget, but even such plans will enter into force from 2016 and there is quite much time for negotiations and agreements.
After all these facts the pressure over the EUR continue to increase and according to our point of view will not stop in the next few months. Most probably this is the reason for us to expect that the EUR will lost positions against the USD and to decrease in range between 1.3590 and 1.3640 during the next two weeks. And even in that point the EUR will be overvalued considering the current financial and political situation.