The correction in EUR/USD that began at the end of last week seems to have been very short-lived. Michael Pfister, FX Analyst at Commerzbank, analyzes the pair’s outlook.

How much USD strength is too much?

I still doubt that the current USD strength will last. On the one hand, some indicators certainly suggest that interest rate hikes are taking effect. On the other hand, various central banks have recently argued that the transmission may be delayed. If this is true, and if it becomes apparent in the coming weeks that the scenario of an extremely robust US economy might gradually weaken, the strength of the Dollar should also diminish. Ultimately, interest rate cuts should then be increasingly on the agenda.

This only leaves the question of whether we will already see the first signs of this today. Probably not. Our economists expect the ISM index for services to also surprise on the upside. We should also expect rather little hawkish commentary from the ECB officials speaking today. Accordingly, the wait for a trend reversal in EUR/USD is likely to continue for the time being.