Euro / U.S. DollarShort
Euro Back to Parity?
The possibility of EUR/USD reaching parity remains a realistic scenario under current macroeconomic and geopolitical conditions.
1. Diverging Monetary Policies
In light of Tump 2.0 and the potential impact of increasing inflation due to the introduction of tariffs, the Federal Reserve is seen to be backing down on its path to keep cutting rates.
On the current plans for only 2 rate cuts in 2025, elevated U.S. interest rates could continue to bolster the U.S. dollar, as higher yields attract foreign investment, increasing demand for USD.
On the other hand, the European Central Bank (ECB) faces mounting pressure to ease its policy stance.
The Eurozone economy has shown signs of stagnation, with Germany, the region's economic engine, teetering on the brink of recession.
A dovish ECB weakens the euro relative to the dollar, contributing to downside pressure on EUR/USD.
2. Weakening Eurozone Economy
The U.S. economy has remained relatively resilient, supported by robust labor markets and consumer spending.
Conversely, the Eurozone has struggled with sluggish growth and energy dependence, leaving it more vulnerable to external shocks.
3. Geopolitical Risks
The ongoing effects of the Russia-Ukraine war continue to strain Europe’s energy sector.
While the region has reduced its reliance on Russian natural gas, high energy prices remain a structural challenge, eroding business competitiveness and consumer purchasing power.
Heightened geopolitical tensions globally have fueled risk-off sentiment, benefiting the safe-haven U.S. dollar.
4. Technical Analysis
EUR/USD has been trading in a downward trend since October 2024, after reaching a peak of 1.12.
Should the pair break below the round number level of 1.02 (and 61.8% Fibonacci retracement level from the longer term) the path to parity becomes increasingly plausible, with 1.00 serving as the next major psychological support.
The 50-day moving average remains below the 200-day moving average, forming a "death cross" pattern, which indicates bearish momentum. Additionally, the TSRI MACD crossover indicates continued selling pressure but room for further downside.
Conclusion
The conditions are aligned for EUR/USD to reach parity.
While short-term volatility and market sentiment may delay this move, the structural drivers of dollar strength and euro weakness remain firmly in place.
1. Diverging Monetary Policies
In light of Tump 2.0 and the potential impact of increasing inflation due to the introduction of tariffs, the Federal Reserve is seen to be backing down on its path to keep cutting rates.
On the current plans for only 2 rate cuts in 2025, elevated U.S. interest rates could continue to bolster the U.S. dollar, as higher yields attract foreign investment, increasing demand for USD.
On the other hand, the European Central Bank (ECB) faces mounting pressure to ease its policy stance.
The Eurozone economy has shown signs of stagnation, with Germany, the region's economic engine, teetering on the brink of recession.
A dovish ECB weakens the euro relative to the dollar, contributing to downside pressure on EUR/USD.
2. Weakening Eurozone Economy
The U.S. economy has remained relatively resilient, supported by robust labor markets and consumer spending.
Conversely, the Eurozone has struggled with sluggish growth and energy dependence, leaving it more vulnerable to external shocks.
3. Geopolitical Risks
The ongoing effects of the Russia-Ukraine war continue to strain Europe’s energy sector.
While the region has reduced its reliance on Russian natural gas, high energy prices remain a structural challenge, eroding business competitiveness and consumer purchasing power.
Heightened geopolitical tensions globally have fueled risk-off sentiment, benefiting the safe-haven U.S. dollar.
4. Technical Analysis
EUR/USD has been trading in a downward trend since October 2024, after reaching a peak of 1.12.
Should the pair break below the round number level of 1.02 (and 61.8% Fibonacci retracement level from the longer term) the path to parity becomes increasingly plausible, with 1.00 serving as the next major psychological support.
The 50-day moving average remains below the 200-day moving average, forming a "death cross" pattern, which indicates bearish momentum. Additionally, the TSRI MACD crossover indicates continued selling pressure but room for further downside.
Conclusion
The conditions are aligned for EUR/USD to reach parity.
While short-term volatility and market sentiment may delay this move, the structural drivers of dollar strength and euro weakness remain firmly in place.
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