Drop to Parity Can’t Be Ruled Out

It seems like bears are in the drivers’ seat and are targeting the parity level of 1.00.

Bearish View

  • Sell the EUR/USD and set a take-profit at 1.000.
  • Add a stop-loss at 1.0300.
  • Timeline: 1-4 days.

Bullish View

  • Set a buy-stop at 1.0310 and a take-profit at 1.0450.
  • Add a stop-loss at 1.0200.

The EUR/USD pair crashed to the lowest level in over 20 years as the outlook of the European economy worsened. The euro dropped to 1.0235, which was the lowest point since 2002. It has fallen by over 4% from its highest point in June this year.


European Economy in Turmoil

The European economy is in turmoil as the crisis in Ukraine continues. Most energy companies in the region that have long relied on cheap Russian gas are on life support.

Germany is on the verge of approving almost $10 billion in bailout for Uniper, one of the biggest energy players in the country. It will also provide bailout funds to Handelsblatt, another leading energy company.

These companies have seen their fundamentals worsen in the past few months as the cost of buying gas has surged. They have also been hurt by the decision by Russia to slash its natural gas flows to Europe. Worse, there is a high possibility that Russia will cut off flows to some European countries in the near term.

As a result, there are concerns that the European economy will experience its worst slowdown in decades. For one, many companies in the region have achieved success mostly because of cheap commodities like natural gas from Russia.

Therefore, the EUR/USD pair is crashing as investors anticipate another debt crisis in the region as the European Central Bank (ECB) prepares for lift-off. Analysts expect that the bank will hike interest rates by 0.50% this month.

Looking ahead, the next key catalyst for the pair will be the upcoming minutes of the Federal Reserve. The minutes will provide more information about what the FOMC committee talked about in their June meeting. The pair will also react to the upcoming American jobs data.

EUR/USD Forecast

The EUR/USD pair made a strong bearish breakout on Tuesday as risks of a recession rose. It is trading at 1.0260, which is slightly below the first support of the Woodie pivot point at 1.0300. The pair remains below the 25-day and 50-day moving averages. It also moved below the important support at 1.0347, which was the lowest point this year.

Therefore, it seems like bears are in the drivers’ seat and are targeting the parity level of 1.00. This will likely happen this month as the demand for the US dollar rises.


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