16.11.202109:40 Forex Analysis & Reviews: Euro left its highs, but it does not stop trying to build up its potential

The European currency, finding itself behind the American one, seeks to increase its potential. However, these attempts have been so far unsuccessful. Nevertheless, experts believe that the situation in the short and medium-term will change for the better.

According to analysts, strong market expectations about the Fed's further steps related to tightening monetary policy put significant pressure on the euro. It should be noted that the implementation of such a scenario implies an increase in the yield on dollar assets. In view of this, the euro remains on the side, gradually strengthening its position. However, the capabilities of this currency leave much to be desired.

The US regulator hesitated for a long time to complete the super-soft monetary policy. Experts said that the catalyst for this measure was extremely high inflation in the United States. This turned out to be the last straw in the Fed's patience. Experts do not rule out the regulator's transition to more drastic measures, including a significant rise in interest rates.

The Euro currency started the current week not too positively. On Tuesday morning, it was at a 16-month low. Meanwhile, the US currency remained stable amid expectations of information on America's retail sales. Analysts fear that strong indicators will provoke a new turn of inflation. If this option is implemented, the Fed will have to return to the issue of raising rates.

Concerns about new outbreaks of COVID-19, as well as the position of the European regulator, which opposes measures to curb inflation, worsen the situation. Against this background, the euro declined below the level of 1.1400 for the first time since July 2020. After the collapse to 1.1356 on Monday, the indicated currency tested the level of 1.1361. The current situation helped the US dollar to reach a 16-month high and hold on to these positions for some time. This morning, the EUR/USD pair was trading in the range of 1.1377-1.1378, building up potential.

The euro is supported by the "dovish" position of ECB President Christine Lagarde. According to the head of the regulator, the rejection of tightening measures is appropriate. She also said that the "hawkish" actions of central banks will cause more harm than good. The current position of the ECB contrasts with the "hawkish" measures of other departments. However, the European regulator considers the existing monetary policy to be correct.

The European currency loses in the current situation, and the American currency gains an advantage. According to Rabobank's currency strategists, the ECB's caution limits the prospects for the euro's recovery against the US dollar. Under these conditions, Rabobank analysts are ready to revise their medium-term forecast for the EUR/USD pair. Earlier, experts stated that the pair will remain near the level of 1.1400 by the middle of 2022, but this indicator looks outdated now.

Currently, investors and traders expect further strengthening of the dollar against the euro. According to UBS currency strategists, the euro will collapse to 1,1000 by the end of 2022. In such a situation, UBS experts advise traders to build their positions taking into account the possible strengthening of the US dollar. Analysts expect the Fed to tighten monetary policy, raise interest rates, and slow global growth. The specialists believe that the slowdown in this growth contributes to the appreciation of the USD.

The final one is the Fed's proactive policy since the regulator turned out to be the driving force in terms of strengthening the PREP compared to other central banks. On this wave, UBS believes that the US currency looks overvalued. At the same time, experts estimate the fair value of the euro at the level of 1.3400.