If the Euro fails to hold above parity, the euro may trade to new yearly lows until the RSI climbs back above 30. In the meantime, a break below the Fibonacci overlap around 0.9910 could bring the December 2002 low on the radar. Should it fail to defend the October 2002 low, EUR/USD may head for the September 2002 low. The next area of interest is around 0.9530, which is 61.8% expansion.
The euro is headed for a 20-year low against the dollar, which is bolstered by energy and supply concerns. On Monday, Nord Stream 1 – the largest pipeline carrying Russian gas to Germany – began its annual maintenance. Flows will be disrupted for ten days. The disruption could extend due to the ongoing war in Ukraine. Further, the ECB has been unable to increase interest rates in the Eurozone, which could trigger a recession.
The euro’s recent fall is caused by heightened concerns about global economic and financial instability. As a result, the dollar has gained strength against the euro and panicked investors across markets. The euro’s weakness has boosted inflationary pressures in Europe and increased the cost of imports. Moreover, central bankers are not targeting the exchange rate level, so they cannot arrest the euro’s decline simply by saying “Stand by!”
The Euro’s price could fall below parity in the near term, and a ten percent drop in global equities would push the pair below parity. However, a successful ECB hike in July would likely discourage the hawks and help the dollar’s value recover from its two-decade low. Assuming that the Fed sticks to aggressive rate-tightening policy, the EUR/USD pair will rise toward parity.
In this scenario, speculators may want to cheapen the Eurozone’s structure. They would look for any reason to move lower. The market will react accordingly. The next step is to look for a reason why EUR/USD has broken below parity, a new cycle low. If the EUR/USD breaks above parity, it could gap lower, thereby weakening the dollar further.
According to Carol Kong, a currency strategist at the Commonwealth Bank of Australia, the dollar has been strengthened by the euro’s weakness. Worries about growth in other parts of the world, such as China, have also supported the dollar’s rise. But the key factor, according to Kong, is the Fed. Moreover, the dollar has benefited from concerns about the world economy.