During the past month, the euro to US dollar exchange rate has risen close to 5%. This is on the back of moderately improved economic sentiment in the eurozone. Nevertheless, concerns over a recession in the eurozone and Russia’s uncertainty about its energy supply continue to weigh on the euro.
Earlier this month, the euro fell to a two-week low against the dollar after the European Central Bank raised interest rates to 1.25%. The ECB reaffirmed that it would continue to raise interest rates until they reach 2% in 2025. Nevertheless, speculation has been circulating for a smaller hike than expected, causing the euro to recoup some of its losses.
Aside from the ECB, the other major player driving the EUR/USD rate is the Federal Reserve. With the Federal Reserve raising interest rates for the first time in a decade, the greenback has become a haven for investors in times of economic uncertainty. However, with the US Consumer Price Index (CPI) likely to show slowing inflation in October, the Fed may shift its strategy from tightening monetary policy to fostering soft landings for the economy. This may keep the EUR/USD from falling too much.
Earlier this month, the euro to US dollar exchange rate briefly touched parity. This is a level of convergence that has not been reached in a few months. This was the first time that the euro has traded at this level since mid-2018. However, it may not be the last. Traders should keep in mind that past performance is not a good indicator of future results.
The euro to US dollar exchange rate has risen a significant amount since the end of September, when the euro briefly fell below the level of parity with the dollar. In fact, it has rebounded from its low on 16 September. Traders should note that the euro may not reach parity until it reaches a new monthly high. If it does, traders will have an opportunity to create a profitable trade by examining how the market reacts to technical strategies.
In the past week, EUR/USD broke out of a three-month long downslope resistance trendline, drawn from its October high. The euro may have more room to go if it can clear the psychologically important figure of $1.0198.
If the euro breaks out of its current downtrend and moves above its September high, traders may consider a move towards the 1.0220 area. On the other hand, if it fails to do so, traders may consider a move towards the 1.0370 region. This area largely lines up with the 1.0369 high of August.
If the euro breaks out of its downward trend and moves above its September high, traders may think about creating a trade that includes the upcoming Consumer Price Index data. However, the inflation rate in the eurozone could exceed expectations and thereby weaken the outlook for the region’s growth. This could put pressure on the European Central Bank to further increase interest rates.
