Key points:
- The EURUSD currency pair rallied higher against the weaker US dollar.
- The single currency is facing stiff resistance at the critical 1.00 parity level.
- The region’s fundamentals do not support a string euro long term.
The EURUSD currency pair was trading up 39 pips when writing this article, adding to Friday’s gains where the pair soared over 200 pips after October’s US non-farm payroll data was released. However, investors interpreted the jobs data as dovish despite the positive figures, leading to a massive dollar selloff.
The US dollar selloff continued today as the US Dollar Index fell for a second consecutive session allowing its competitors to get the upper hand. However, the euro faces significant resistance at the 0.9998 level as the currency fights to regain parity with the US dollar.
Also read: Forex Trading For Beginners.
The 1.00 parity level is crucial. Many euro bulls would like to see the currency breach this level and head higher, reclaiming its position as a more valuable currency than the dollar. However, the eurozone economy’s fundamentals do not support a stronger euro.
The euro area registered GDP growth of 0.2% quarterly in Q3, which is good since the economy did not contract, but the future outlook is gloomy. The European Central Bank lags behind the region’s inflation indicators and is now playing catch up with inflation as it hikes rates aggressively to contain record-high inflation.
Despite the slight growth registered in Q3, analysts expect the eurozone to enter a recession starting in Q4 and into next year amid a bitingly cold winter, which will have a significant negative impact on the region’s economic production as consumers battle a gas shortage after Russian gas imports are suspended in December.
Therefore, even as we wait for the euro to break above parity against the dollar, many know the road ahead for the single currency is challenging. The currency could benefit from a weaker dollar as investors react positively to the Fed’s less aggressive rate hiking policy as US inflation falls.
*This is not investment advice.
EURUSD price chart.
The EURUSD currency pair was trading up 39 pips (0.39%), adding to Friday’s gains, but was facing resistance.