Managing EUR/USD is very easy at the moment: you just have to wait a little. Ultimately, the exchange rate always returns to 1.0850. The day before yesterday, this rule was confirmed once again. After the exchange rate had recently traded at almost 1.0950, it returned to the seemingly attractive value, Commerzbank FX strategist Ulrich Leuchtmann notes.

EUR/USD may continue to fall below 1.0850

“A random walk of this kind has a (stochastic) trend, which in turn means that in mid-November 2023, EUR/USD crossed the 1.0850 mark. Since then, the probability of seeing this level again should have decreased. However, this does not appear to be the case. We keep seeing 1.0850. In short: the above does not look like a random walk.”

“However, there is a danger with such an analysis: that we interpret patterns or regularities into purely random phenomena. Entire legions of ‘technical analysts’ live off such optical illusions. And EUR/USD has not crossed 1.0850 so often that we would have reasonably reliable information about the change in probability over time.”

“It is dangerous to underestimate the risk of permanently effective exchange rate movements. If EUR/USD continues to fall tomorrow and moves further away from 1.0850, there is no reason to believe that this will be corrected at some point in the future. Exchange rates do not ‘come back’. At least not with a higher probability than that they will continue to move in the same direction.”