Euro May Be About to Drop Below Parity Against the US Dollar: Top Trading Opportunities

The Euro stabilized within the second quarter – pausing a downtrend in play since December 2020 – as ECB officers lastly signaled a readiness to behave towards surging inflation. The headline CPI fee hit an eye-watering fee of 8.1 % in Might. The foreign money discovered a flooring and commenced to inch upward as fee hike expectations started to be absorbed into costs.

Hypothesis culminated on June 9, because the ECB formally introduced incoming rate of interest hikes. The central financial institution beforehand mentioned it will finish bond purchases – a type of non-standard stimulus – in July. Lower than every week later, an emergency assembly was scrambled and a mandate to create a brand new device towards ‘fragmentation’ given.

That stopped the Euro’s ascent in its tracks. ECB tightening expectations revived worries about excessive ranges of debt in some Eurozone economies. The unfold between Italian and benchmark German 10-year authorities bond yields widened sharply to a two-year excessive of 242 foundation factors (bps) after June’s coverage assembly.

Managing ‘fragmentation’ – that’s, diverging lending charges throughout Eurozone states – now looks as if it is going to essentially preserve ECB tightening modest relative to international friends. That places the one foreign money at an acute drawback, suggesting the downtrend is because of resume.

Euro Downtrend Stalls as ECB Price Hike Bets Surge (Weekly Chart)

Chart created with TradingView, ready by Ilya Spivak

EUR/USD chart positioning is at a pivotal juncture within the meantime. Wanting on the month-to-month chart, costs are sitting on help on the backside of a spread that has capped draw back progress since March 2015. Breaking under this barrier might set the stage for the following massive leg within the structural decline from the height above 1.60 in 2008.

A month-to-month shut under 1.0340 would appear to be affirmation of a breach, with the following transfer after that seemingly set to carry the trade fee under the carefully watched parity stage. Lengthy-term Fibonacci extensions approximate subsequent steps, with noteworthy inflection factors seen at 0.9707 (50%) and 0.9034 (61.8%).

On the topside, fast resistance ranges are available at 1.0885 and 1.1239. A rebound that brings costs by these boundaries is prone to put the multi-year congestion zone capped at 1.1727 again into focus. Nonetheless additional above that’s trend-defining support-turned-resistance operating up into 1.2538.