EUR/USD: Pair Gains Momentum After A Bearish Breakout
NAGA | Jul 07, 2022 05:58AM ET
Everyone following the market has heard the word “parity” left, right, and center. Parity is a term used within the financial trading markets to describe the value of the euro as equal to the value of the US dollar. In a little over a year, the EUR/USD has declined by 16.5%, and we are only 220 pips away from parity.
The EUR/USD pair has struggled to break through the support level of 1.0350 over the last two days. Since the bearish breakout, the price has gained momentum and declined by 234 pips. This morning the pair is slightly in the green but has so far gained nothing more than a retracement and failed to form a higher high. However, traders are likely to be cautious about placing additional sell trades while the price increases.
The price is mainly influenced by the Federal Reserve meeting minutes and the euro’s current weakness. The market wondered whether the Fed would increase interest rates by either 50 or 75 basis points. However, the Fed advised that it would depend on the newest inflation figures.
However, the meeting minutes did expose certain views and opinions of the most influential bankers in the US. The minutes revealed that the Fed is likely to become even “more restrictive” if inflation does not decline. Furthermore, the report confirmed that the central regulator would not allow inflation to become a lasting trend. High inflation over long periods has been known to be highly damaging to economies and the currency's purchasing power, as was the case with Turkey and South America.
In addition to the Federal Reserve, the US dollar was supported by the economic figures released yesterday. This includes the services PMI which came in higher than expected at 55.3, as well as the JOLTS Job Openings which again came in higher than expected at 11.25 million.
The euro has come under immense pressure over the past week as the region continues to deal with a potential gas shortage. This is due to the upcoming temporary suspension of Russian gas supplies via the Nord Stream 1 and the oil and gas workers' strike in Norway. In addition, the region has come under pressure from its latest economic figures, which show that the economy has stopped growing, but simultaneously the level of inflation remains high. This put the European Central Bank in a difficult position as they look to tackle inflation.
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Throughout the day, the markets will focus on the European Economic Projections, the US Unemployment Claims, and speeches scheduled for this afternoon where the Federal Open Market Committee will comment on inflation and the monetary policy.
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