Euro surges to 1-month high

The euro has jumped out of the gates on Monday with sharp gains. In the European session, EUR/USD is trading at 1.0673, up 1.12% on the day.

Euro rebounds

The euro looked hopelessly lost earlier this month, when it dropped to 1.0349, its lowest level since January 2017. There was increasing speculation that the euro was heading to parity with the US dollar. EUR/USD has rebounded back in impressive style, gaining 1.42% last week and extending the rally today. However, the upswing will be difficult to sustain above the 1.07 line, as the euro’s rally is more a story of US dollar weakness rather than euro strength.

The dollar has fallen out of favour as fears of a US recession are weighing on sentiment towards the dollar. US yields were above the lofty 3% threshold just two weeks ago, but nervous investors have snapped up US Treasury bonds, sending yields lower. In turn, the US dollar has also retreated.

Despite the euro’s turnaround, the medium and long-term picture is bearish for the currency. The ECB remains in dovish mode, and upcoming Fed rate hikes will widen the US/Europe rate differential and weigh on the US dollar. The ECB might raise rates in July, but will clearly lag behind an aggressive Fed, which is likely to deliver 50-bps hikes at the July and August meetings.

The euro faces a persistent headwind coming out of Ukraine, as the war between Russia and Ukraine continues. Heavy fighting has been reported in the east of the country, and a ceasefire, let alone an end to the fighting, appears unlikely anytime soon. That means oil and wheat prices will remain elevated, contributing to high global inflation and weighing on risk appetite, which is bearish for the euro.

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EUR/USD Technical

  • EUR/USD is testing resistance at 1.0648. Above, there is resistance at 1.0736
  • There is support at 1.0519 and 1.0431

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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