Image © Adobe Images

The Euro to Dollar exchange rate is running out of upside momentum, according to a new analysis from Commerzbank.

The bank's strategist, Michael Pfister, says in a new note that indications point to Euro-Dollar "slowly running out of steam at 1.09".

"At EUR-USD levels just below 1.09 things then clearly got a little too hot for the market and the gains were retraced. The market had already considered this level to constitute an initial obstacle on Tuesday," says Pfister.

The Euro surged in value against the Dollar following Tuesday's below-consensus U.S. inflation print that prompted markets to 'price out' further interest rate hikes at the Federal Reserve and 'price in' rate cuts in 2024.

Subsequent data has been mixed but was unable to meaningfully turn the tide in the Dollar's favour.

Commerzbank's FX strategy team thinks the move higher in the Euro-Dollar pair is justified, although the move now looks relatively extended in the near term.

"A breach of the 1.09-mark would probably require a clearer indication that inflation is returning to target levels or that a recession is looming in the US. Or both. In the absence of any new information of this nature – today will only bring second-tier US data – exchange rates are likely to be stagnating," says Pfister.

Above: "The air is getting thin at 1.09!" - Commerzbank.