Markets are like people: if they don't know what to do, they get nervous. They start jumping from one extreme to another in search of a way out. It's been a long time since we've seen such a rollercoaster in the EURUSD pair. It rises, then falls even faster, then rises again, completely making up for the previous day's losses. When the Federal Reserve and European Central Bank meetings are just around the corner, decisions at which will be made depending on the data, and with a whole mountain of this data, you can't help but get nervous.

Formally, the main driver of the euro rally was positive consumer climate data from Germany's GfK, which exceeded Bloomberg forecasts, and hawkish rhetoric from members of the Governing Council. Pierre Wunsch, Isabel Schnabel, and Philip Lane were so convincing that the futures market raised the implied deposit rate peak to 4%. It believes in the continuation of the ECB's monetary tightening even if April's data show that the core inflation peak has been reached. In the end, the peak Core CPI is not the end of the road for the ECB. The central bank needs to confirm that inflation is approaching the 2% target.

Market expectations for the interest rate ceilings of the Fed and ECB

In the US, however, nothing changes. The chances of a 25 bps hike in the federal funds rate in May fluctuate between 77% and 91% and back again. At the same time, the assumed peak remains at 5.25%, which indicates the imminent end of the Fed's monetary tightening cycle. This is bad news for the US dollar.

The USD index unexpectedly gained energy due to the release of disappointing US consumer confidence data and weak corporate earnings from First Republic. Investors seemed to remember that the dollar is a safe-haven currency, in theory, it should rise when stock indices fall, and bad news comes from the economy. Even if it is the US economy. They remembered and were immediately in doubt. After all, the current situation is unique, and if EURUSD rose earlier on expectations that the US would become the only major economy to plunge into a recession, then why should everything change in a day?

The euro quickly recouped its losses, but it is not a fact that it will not fall in response to the release of US GDP and inflation data. Positive data will indicate the resilience of the US economy, and if we add to this the preservation of prices at elevated levels, then why wouldn't the Fed raise the federal funds rate to 5.5%? Or to 5.75%? Everything will really depend on the data, and who knows what they will turn out to be.

Technically, the current consolidation of EURUSD is something extraordinary. On Tuesday, there was a feeling that it would play out a 1-2-3 reversal pattern, but the bears could not lower the quotes below the fair value at 1.097, and their attack ended there. Recognizing an opportunity, bulls immediately took the advantage and aimed to update the annual highs.

In my opinion, in the current situation, it is better to either stay out of the market or use the 1.1 level as a kind of red line. Above it, buy EURUSD, if it is below the level, sell.