EUR/USD: is parity a possibility soon?

Like the main Eurozone equity indices, the CAC and DAX, the single currency released significant selling energy in the middle of the week, with risk appetite contracting as fears of a recession in the major economic hubs on both sides of the Atlantic took hold. Macroeconomic confidence data released recently (German business climate, US consumer confidence) are weighing heavily, in a climate clouded by the prospect of persistently high inflation. The latest figures published on Thursday by INSEE confirm this for France, with a CPI of +0.7% from one month to the next.

In the US, fears of a price/wage spiral have not been dismissed, as has the fear of a marked slowdown in industry. "Probably, the next ISM release will not yet be at 50 (it was 56 in May). However, the business climate is slowly but surely moving in that direction. Above all, this slowdown in activity should be reflected in earnings releases, which should surprise on the downside from the second half of 2022," says Chris Morel (Groupama AM).

Right now, the pair is trading at $1.0474.

KEY CHART ELEMENTS
The failure to touch the 50-day moving average (in orange) is now in place, and bearish targets towards $1.0350 and $1.0250 are locked in. A close on the weekly lows in week 23 reinforced the bearish message. Further contact with the aforementioned trendline would further strengthen the quality of the entry point. This is exactly what happened last Wednesday, on a zone of convergence of two remarkable moving averages. Next test: $1.0350, then $1.0250. Below that, the perfect parity (1 dollar per euro), would act as a magnet.

MEDIUM TERM FORECAST
Given the key chart factors we mentioned, our medium-term view on the EUR/USD is negative.

Our entry point is $1.0394. Our bearish scenario price target is $1.0001. In order to preserve the capital invested, we advise you to place a protective stop at $1.0485.

The expected return on this forex strategy is 393 pips and the risk of loss is 91 pips.