The short-term prospects for the single currency look relatively healthy, mainly due to the US dollar weakness. The USD still can’t attract sustainable demand, despite the signs the Fed may have to hike more aggressively in order to prevent the economy from overheating. A fresh signal for the interest rate hike expectations will be the US GDP and PCE numbers on Wednesday. Should the data exceed expectations, it could boost USD buying and send the euro to the lows in the 1.2250 area.
A more significant risk for the single currency will be the “super Saturday” when we will know whether the members of Social Democratic Party approved the coalition deal, while Italy will hold the general election. The prospects for rising political tensions in the region may trigger a wave of profit taking in the EURUSD pair later this week and send the single currency back below the 1.22 mark.