Euro breaks below 1.01 – is parity next?

Euro nearing parity with dollar

It continues to be a miserable July for EUR/USD, which has declined 3.12%. The euro continues to deliver fresh 20-year lows, dropping to 1.0071 late in the Asian session. The euro has since recovered most of today’s losses, but the psychologically-important parity line is getting closer by the day, as the euro continues to stumble. On the economic front, US nonfarm payrolls outperformed, with a reading of 381 thousand, well above the consensus of 240 thousand.

The ECB released the minutes of its June meeting on Thursday, with investors hunting for clues about the lift-off hike at the July meeting. The minutes didn’t provide any new insights, which could be a disappointment but shouldn’t really be all that surprising. The July 21st meeting will be live, with a modest 25bp increase being the most likely scenario, with another rate hike to follow in September. Still, the ECB has not shut the door on a larger hike at the upcoming meeting, and we have recently seen higher-than-expected moves by the Federal Reserve and other central banks.

Lagarde & Co. will be keeping a close eye on next week’s inflation reports out of Germany and France, the two largest economies in the eurozone. If inflation remains unchanged or dips lower, it will provide ammunition for the doves who are content with a 25bp move. Conversely, a rise in inflation will put pressure on the ECB to respond with a 50bp increase.

Another factor in the rate decision could be the exchange rate. A weak euro is attractive for exports but also contributes to inflation.  The euro hasn’t been at parity with the US dollar since 2002, and some ECB members may feel that the central bank’s credibility is on the line if the euro continues to slide and falls below parity.

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EUR/USD Technical

  • EUR/USD tested support at 1.0124 and 1.0075 in the Asian session
  •  There is resistance at 1.0221 and 1.0324

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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