EUR/USD Approaches Parity: 20-Year Low
This past week we witnessed the Euro at a 20-year low, briefly falling slightly below parity with the USD. However, this was short-lived as Forex traders bought the Euro across the globe for what looked like a bargain price. In addition, short Euro traders were also covering their positions, representing the more significant portion of the strong buying surge shortly after breaching parity.
The one-to-one “Big Figure” is not only a historical level but a significant psychological barrier. Human conditioning has taught us to round everything off with the 0 figure, and in our everyday lives, we use the 00 literally. It’s common to say, “ I wish to spend $1000 on that repair – we don’t usually say, I’m going to spend $984.22 on that repair. The 00 terminology is just the day-to-day conditioning that entices us to round things off with the big 00 or little 50 figure, as is often referred to as Forex traders. The parity 000 figure is a level carefully watched throughout trading history.
So How Did Parity Get Reached So Quickly?
The simple answer; is economics. European economies are currently struggling with an energy and inflation crisis, and market sentiment indicates the movement toward the USD and away from the Euro. We can see the most simple chart to know where the money flows. It is rapidly flowing out of the Euro as the European economies fight bravely to avoid a further sell-off.
A Short–Term Bounce Is Expected
The sell-off these last few weeks has been profound and long, as price action has shown. The previous few hundred pips towards parity crumbled with the onslaught of sellers. The bounce, as mentioned earlier, is a combination of profit takers and bargain hunters. Eventually, one side will win.
I believe selling momentum is too strong for buyers to hold back the onslaught.
Recession Predictions Have Replaced Confidence
The culprits: Higher-forecast energy prices and record inflation. As the summer ends, the demand for heating oil and gas will surge. Russia continues to cut back on natural gas supplies to the European Union as retaliation for Ukraine’s weapons deliveries and ongoing Russian sanctions. Euro area inflation has risen to 8.6%, and experts are touting 10% before year-end. The pressure intensifies on the EU as a recession becomes more and more likely.
It will be interesting to see how much of a Euro bounce we can expect in the next few days. So trading may be intense as we continue watching the energy saga unfold with Russia in a commanding position.
As always, ForexSignal members can expect live trading signals as they unfold.
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