Euro Slides and US Dollar Soars as China Face Further Restrictions. New lows for EUR/USD?

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Jul 11, 2022 | DailyFX
Daniel McCarthy, Strategist

 

EURO, EUR/USD, US DOLLAR, CHINA, BA.5, JAPAN, LDP, USD/JPY - TALKING POINTS

• The Euro dived as US Dollar demand surged on economic outlook fears
• APAC equities, commodities and their related currencies are mostly lower
• Japan’s stocks found support. Will a technical signal trigger a EUR/USD reversal?

The Euro is under pressure to start the week as demand for US Dollars picked up steam on concerns for global economic growth.

EURUSD TECHNICAL ANALYSIS

The Euro bounced off the 161.8% Fibonacci Extension at 1.0079 to end last week. That level might provide support if it is tested again. That is a 20-year low for EUR/USD.

Friday also saw a Bullish Hammer emerge after the dip created a new low before rallying and closing above the open. Note that the wick is more than twice the length of the candle body.

On the topside, resistance might be offered at 1.0340 – 1.0360 area where a number of break points lie.

Chart created in TradingView

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The End of an Era for the Euro

BY:FRANK KABERNA | 6 Jul 2022 | Tastytrade

If you started trading in the last two decades, you’ve only known a world in which the euro is worth more than the US dollar. You’d have to go all the way back to 2002 to find data points representing the EUR/USD conversion rate that start with a zero to the left of the decimal point.

The euro is trading as close to parity with the dollar as it has for the last several years - under $1.05.* Will the euro finally crash below $1 for the first time in 20 years? Or, is yet another bounce coming as it did in the late 2010s?

Euro-US Dollar Conversion Rate Historical Prices

Though it may look like the sky is falling in the Eurozone, their currency has been here before. Actually, the euro broke $1.05 back in 2017 only to close the year above $1.20.

6E / Euro Currency Futures Historical Prices

This historical data, of course, does not guarantee a path higher for EUR/USD, but it at least sets a precedent for the eurozone currency to bounce back just when sub-$1 prices may seem inevitable.

Probability of a $1 EUR/USD Conversion Rate

All of that said, some are placing bets on euros falling below parity against dollars as soon as August. Prices on the 1.00 Euro FX Futures (6E) options project a 10% chance of the euro reaching $1 by August 5, 2022, and the same strike options in longer-term expirations only see rising probabilities of such an event.

If you think even a 10-20% chance of this event that hasn’t occurred since 2002 is too high, then you can sell the 1.00 puts in 6E; if you think euro-dollar parity is coming by the end of 2022, then you can buy them. Alternatively, a trip down to 1.00 in the relatively large 6E futures would roughly coincide with a journey north of 168 in Small US Dollar Futures (SFX). Selling or buying SFX calls in that range could yield a smaller version of this strategy.

The financial media loves to call for the end of an era whenever it’s close to being relevant, but, more often than not, the same old song continues. Futures and options let you call BS or FACTS when the news story comes up.

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EUR/USD Update: Nord Stream Goes Offline, EURUSD Attempts Parity

Jul 11, 2022 | DailyFX
Richard Snow, Analyst

EUR/USD NEWS AND ANALYSIS

• Germany’s biggest single gas pipeline shuts off for routine maintenance
• Key EUR/USD technical levels ahead of the next push towards parity
• Major risk events: US CPI, Retail Sales and Germany CPI

 

KEY EUR/USD TECHNICAL LEVELS

The euro continues to be one of the most susceptible currencies as multiple headwinds accrue. The ECB continues its forward guidance around an almost certain 25 basis point (bps) move when the Governing Council meets later this month. On the other hand, the dollar goes from strength to strength, buoyed most recently by a stellar NFP jobs report.

The daily EUR/USD chart shows another early attempt to reach parity after Friday saw a fairly robust rejection of the crucial level. The RSI and MACD index show no sign of letting up as the pair continues to trade in oversold conditions. Crucial support lies at parity (1:1) while resistance comes in at 1.0310, 1.0340 and 1.0450.

EUR/USD Daily Chart

Source: TradingView, prepared by Richard Snow

On the 4-hour chart, the downtrend continues – lower lows and lower highs. The first challenge to the bearish push appears via the Friday wick low.

EUR/USD 4-Hour Chart

Source: TradingView, prepared by Richard Snow