As we saw on Friday last week the European currency traded slightly above 1.3400 which is over-rated according to the current circumstances.

Is Euro over-rated at this exchange rate?

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Usually the European Central Bank (ECB) is the key player in the exchange rate and they do not interfere unless inflation threatens their financial plans and the economy in general. The ECB has clearly stated that they are willing to do anything to avoid deflation.

The strong euro has not helped, because it has dampened inflation by lowering import prices while also making European exports extremely expensive around the globe.

Cutting the rollover charges (overnight charges) on bank deposit rates into negative territory, the ECB will be forcibly charging lenders to park their funds with them.

The goal is that it will spur banks to offer more loans and also weaken the euro, helping to lift an inflation rate that had dropped to a four-year low in May.

Trying to avoid deflation, a condition of falling prices, has increased during persistently high unemployment and constrained government budgets, particularly in the eurozone region.

So the idea is to protect their economy. During this process they might record a new low which has not been seen for quite some time, therefore bearish conditions apply and we highly recommend to remember the escalating situation between Russia and Ukraine; keeping in mind the political situation in Iraq as America is involved at the moment and situation is most likely to escalate further.

So we need to be wise about the euro and look at the heavy currency, it could not break the range of 200 pips for months, so traders can expect a massive movement backed by major news or major events in the mentioned crisis.

We wish you all the best in your trading plans and it is highly recommended to keep an eye on gold and silver as well and use it as an indicator for you to measure the USD and euro strength.