The Euro fell below parity against the Dollar

The DOLLAR index, which surged above 107 last week, continued its surge this week, hitting its highest level since October 2002 overnight near 108.19.

As of 17:30, July 12, Beijing time, the DOLLAR index was 108.3. Us June CPI will be released on Wednesday, local time. Currently, the expected data is strong, which is likely to strengthen the basis for the Federal Reserve to raise interest rates by 75 basis points (BP) in July.

Barclays published a currency outlook entitled “An expensive dollar is the sum of all tail risks”, which seemed to sum up the reasons for the dollar’s strength — conflict between Russia and Ukraine, gas shortages in Europe, us inflation that could push the dollar higher against major currencies and the risk of recession. Even if most think the dollar is likely to be overvalued in the long term, these risks are likely to cause the dollar to overshoot in the short term.

The minutes of the Federal Open Market Committee’s June monetary policy meeting, released last week, show that fed officials did not discuss a recession. The focus was on inflation (mentioned more than 20 times) and plans to raise interest rates in the coming months. The Fed is more worried about high inflation becoming “entrenched” than the risk of a potential recession, which has also boosted expectations of further aggressive rate rises.

In the future, all circles do not believe that the DOLLAR will weaken significantly, and the strength is likely to continue. “The market is now betting 92.7% on a 75BP rate hike at the Fed’s July 27 meeting to a range of 2.25%-2.5%.” From a technical point of view, the DOLLAR index will point to resistance at 109.50 after breaking the 106.80 level, Yang Aozheng, chief Chinese analyst at FXTM Futuo, told reporters.

Joe Perry, senior analyst at Jassein, also told reporters that the DOLLAR index has moved higher in an orderly fashion since May 2021, creating an upward path. In April 2022, it became clear that the Fed would raise rates faster than expected. In just one month, the DOLLAR index rose from around 100 to around 105, fell back to 101.30 and then rose again. On July 6, it stood on the upward trajectory and recently extended its gains. After the 108 mark, “the top resistance is the September 2002 high of 109.77 and the September 2001 low of 111.31.” Perry said.

In fact, the dollar’s strong performance is largely “peer”, the euro accounts for nearly 60% of the DOLLAR index, the weakness of the euro has contributed to the dollar index, the continued weakness of the yen and sterling also contributed to the dollar.

The risk of recession in the eurozone is now far greater than in the US because of the severe impact on Europe of the Conflict between Russia and Ukraine. Goldman Sachs recently put the risk of the US economy entering recession next year at 30 per cent, compared with 40 per cent for the eurozone and 45 per cent for the UK. That is why the European Central Bank remains cautious about raising interest rates, even in the face of high inflation. Eurozone CPI rose to 8.4% in June and core CPI to 3.9%, but the ECB is now widely expected to raise interest rates by only 25BP at its July 15 meeting, in sharp contrast to the Fed’s expectation of a rate hike of more than 300BP this year.

It is worth mentioning that The Nord Stream Natural gas pipeline company said it temporarily shut down two lines of the nord Stream 1 natural gas pipeline operated by the company from 7 PM Moscow time on The day for routine maintenance work, RIA Novosti reported On November 11. Now that winter gas shortages in Europe are a sure thing and pressure is building, this could well be the straw that breaks the camel’s back, according to the agency.

On July 12, Beijing time, the euro fell below parity against the DOLLAR to 0.9999 for the first time in nearly 20 years. As of 16:30 on the day, the euro was trading around 1.002.

“Eurusd below 1 could trigger some big stop-loss orders, induce new sell orders and create some volatility,” Perry told reporters. Technically, there is support around the 0.9984 and 0.9939-0.9950 areas. But annualized overnight implied volatility rose to 18.89 and put demand also increased, indicating that traders are positioning themselves for a potential pop/bust this week.”