Is The Eur Stuck In A Feedback Cycle?

I play a hollow body electric guitar. The sound is great but one hazard of playing too close to your speakers is the body starts to resonate and creates a feedback cycle. As sound exits the amplifier speakers it hits the body of the guitar and makes it vibrate, that vibration moves the strings, which is then registered by the pickups and sent back to the amplifier. As you can imagine, if I am not holding the guitar, which prevents the feedback, the noise escalates, annoys everybody and could seriously damage my amplifier.

The ECB is facing a similar problem. If inflation continues to escalate, the most potent tool at their disposal is a rate hike to cool inflation. However, the differential between those rates and US rates would continue to widen, which will make the EUR more attractive and could only exacerbate problems for the ECB by driving the value of the EUR exchange rates. By attempting to push inflation down, raising rates may just "feedback" into the system and continue to drive the value of the EUR against the other majors.  

I have seen a number of traders talking about this situation and have had several questions so far today about it. The driver behind this issue today are the comments from the ECB's Christian Noyer. Those comments are being interpreted as a higher probability of rate hikes in the future? So does this mean that the EUR/USD exchange rate is headed to 1.75? I don't think so but I do have a great deal of confidence that the exchange rate is not going to break its channel to the downside any time soon. A bullish bias like that on the pair may create a very nice opportunity for selling short term puts on the pair.

Do you want to learn how to sell puts in a situation like this? Check out the new forex options course.