EUR/USD longs squeezed to breaking point, below parity eyed


  • EUR/USD bears are moving in for the kill to break 1.05 the figure. 
  • Eyes are on the monthly support that guards the risk of a break below parity. 
  • The NFP data will be key in this regard as the US dollar bulls look for a reason to stay the course. 

At 1.0520, EUR/USD is down some 0.9% in late trade on Wall Street. The price dropped from a high of 1.0641 to a low of 1.0492 on the day with the US dollar soaring at the start of the North American shift. The euro was sold off in the wake of damaging data from the eurozone and ongoing concerns over the Ukraine crisis. 

Investors are looking ahead at the prospect of a summer of discontent as global growth fears mount following a series of worrisome economic data and ongoing geopolitical risks. Chinese PMIs remain in contraction territory and the COVID lockdowns disrupting supply chains combined with the contagion of the Ukraine crisis in commodity markets has left a dark cloud over global growth prospects. 

Then, the Bank of England warning of stagflation and weak German data that was showing that industrial orders in March suffered their biggest monthly drop since last October hammered down the coffin for the euro on Thursday. The greenback was subsequently boosted by safe-haven buying as global equities come back under pressure. 

DXY, an index that measures the greenback vs. six rivals, is currently trading at 103.59 and is 1.06% higher on the day after rallying from a low of 102.352 to a new cycle high of 103.942. The move comes following the Federal Reserve the prior day affirming that it would take aggressive steps to combat soaring inflation.

The greenback was initially sold off as markets sold the fact yesterday when the Fed hiked by 50bps, as expected. However, there was a cohort of investors expecting a more aggressive move and guidance from the Fed's chairman, Jerome Powell, during the press conference. Instead, the dollar dropped sharply when the Fed chairman, dialled back on prospects of 75bps hikes. 

Looking ahead, a lower appetite for emerging markets combined with the Fed's focus on fighting inflation are all factors that would be expected to underpin the greenback. Friday's Nonfarm Payrolls are going to be important in this regard. 

The moves in the markets come ahead of Friday's showdown event in the US jobs market. The Nonfarm Payrolls (NFP) is a major risk and could well set the tone for the following weeks ahead of the next Fed rate decision. 

''A strong payrolls report could perversely push the market to price in more tightening as the Fed reduced its optionality at its most recent meeting,'' analysts at TD Securities said. 

''That leaves a resilient USD vs EUR and yen very much the path of least resistance. A softer wages print should help to temporarily take the edge off but this will be short-lived until evidence of a peak/moderation in CPI emerges.''

Meanwhile, analysts at ANZ Bank explained, ''whilst the Fed is not currently considering a 75bps rate increase, that guidance is based on expectations that the trend increase in monthly Nonfarm payrolls will slow and core inflation is stabilising. But there are no guarantees at all that that will be the case. Demand for labour in the US remains very strong and core services inflation is rising steadily. The April non-farm payroll and employment reports tomorrow night, therefore, carry a lot of significance.''

Should the jobs data come in strong, it could exacerbate the fall in the euro that is already testing the bull's commitments around 1.05 the figure:

EUR/USD technical analysis

As per the prior day's post-Fed analysis in both the DXY and euro, the price indeed reverted to test and penetrate the neckline of the W-formation.

Prior analysis:

The price came into a handful of pips from the 38.2% Fibonacci retracement level of the prior bearish impulse. The market has sunk to challenge the neckline of the W-formation, penetrating to print below 1.05 the figure on the day:

A break of the neckline followed by a bearish close will open the door for further downside ahead, as per the monthly chart:

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

EUR/USD retreats below 1.0650 on renewed USD strength

EUR/USD retreats below 1.0650 on renewed USD strength

EUR/USD came under modest bearish pressure and declined below 1.0650 in the European session on Monday. The renewed US Dollar strength doesn't allow the pair to gain traction as focus shifts to ECB President Lagarde's speech.

EUR/USD News

GBP/USD drops to fresh five-month lows, closes in on 1.2300

GBP/USD drops to fresh five-month lows, closes in on 1.2300

GBP/USD extends its slide toward 1.2300 and trades at a fresh five-month low in the European session on Monday. The cautious market stance helps the US Dollar stay resilient against its rivals and weighs on the pair ahead of Tuesday's key PMI data.

GBP/USD News

Gold drops to one-week low below $2,350

Gold drops to one-week low below $2,350

Gold stays under heavy bearish pressure and trades at its lowest level in a week below $2,350. The benchmark 10-year US Treasury bond yield stays in positive territory above 4.6%, forcing XAU/USD to stay on the back foot.

Gold News

XRP jumps above $0.50 as Ripple is set to file opposition brief in SEC lawsuit

XRP jumps above $0.50 as Ripple is set to file opposition brief in SEC lawsuit

XRP price climbed to a high of $0.54 on Monday, hours before Ripple files its response to the Securities and Exchange Commission (SEC) remedies-related opening brief. 

Read more

All eyes on Lagarde – Stock markets remain in correction/sell-on-upticksmode

All eyes on Lagarde – Stock markets remain in correction/sell-on-upticksmode

Today’s eco calendar won’t move markets with EMU April consumer confidence the sole important release. ECB President Lagarde gives a lecture at Yale university, but she’ll stick to previous comments.

Read more

Forex MAJORS

Cryptocurrencies

Signatures