Abstract:EUR/USD: Is potential parity priced in already amid the recent weakness against the Dollar?
Amid a strong 3-day sell-off, the euro is near a twenty-year low versus the dollar, and the smart money is betting on parity, in as little as six months, due to slower growth or even a recession. However, Euro rose in European trade away from five-year lows against the dollar for another session on active short-covering. The euro is also recovering on hopes of European policy tightening after bullish remarks from some ECB members.
Traders are putting their money where their mouths are. There has been a significant increase in betting that the pair will achieve parity and a majority of FX traders responded to a recent survey that the euro will decline to $1. Analysts are waiting to see if the currency will fall below 2017 low as it is close to breaking the last support (103.5) above parity. The primary culprit is surging energy costs as the EU is considering boycotting Russian energy exports. Soaring energy prices are also the core driver of rising inflation and reduced economic growth forecasts for Europe amid worries of stagflation. Some European Central Bank members expressed concerns about the Euro's weakness and the importance of intervening with bullish policies to bolster its standing and stave off inflation. Now markets are pricing in a 95 basis points hike in Europe by the year's end, up from 80 basis points before.
EUR/USD last traded up 0.3% at 1.0436, after rising 0.25% on Friday, the first profit in four days away from 1.0350, a January 2017 low. These levels may provide support. On the topside, nearby resistance could be at the breakpoint of 1.048 or the 10-day simple moving average (SMA), which currently dissects at a historical level of 1.0494. Further up, the first breakpoint at 1.0638, might offer an area of resistance.
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