EURUSD parity is within reach

07 July 2022 186
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The EURUSD downtrend continues to develop: quotes have overcome the lows of January 2017 at 1.034 - 1.035. Subsequently, a new hike to the parity level (the first since December 2002) seems almost inevitable. It’s only a matter of time.

 

The European currency looks nowhere to be helped. The planned rate hike of 0,25% after the ECB session on July 21 is unlikely to reverse the trend with the apparent euro’s weakness. Issues of the European economies are beyond the control of monetary policy. The key problems relate to the energy crisis and geopolitical tensions.

 

The case with the EU leading economy, i.e. Germany is indicative. The country’s trade balance has become in deficit for the first time since 1991. The spike in energy prices (gas prices in Europe have doubled over the past month) has already fuelled inflation to 8.6%. And since the problem is on the supply side, not a demand one, the tightening of the ECB's monetary policy is unable to significantly improve the situation.

 

Fed officials are much more determined: another 0.75% rate hike awaits us on July 27th. Unlike Europe, the U.S. doesn’t have these issues with energy prices, while gas prices have fallen sharply only in recent weeks. The situation with a fuel cost is more tense. But the U.S., being the largest oil producer in the world, possesses much more leverage over the market than the import-dependent European economies.

 

After the EURUSD breakdown at 1.035, there hasn't even been a slight upward rebound yet, so entering the position at the current price looks quite risky. The RSI is approaching the oversold zone, also indicating at least a short-term stop in the EURUSD decrease. A new falling wave is expected after the upward rebound.

 


The following trading strategy may be applied:

 

Sell EURUSD during the upward rebound to 1.035. Take profit 1 - 1.016. Take profit 2 - 1. As a Stop loss, the falling trend is used, which is currently around 1.05.

 

Alternatively, traders may use a Trailing stop instead of a fixed Stop loss at their discretion.

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