Euro above parity by a thread

It is looking like July 2022 could be a memorable month for the euro, but unfortunately not for the right reasons. EUR/USD is within a whisker of dropping below parity with the US dollar for the first time since 2002, when the euro was just three years old. In the North American session, EUR/USD is trading at 1.008, down 1.00%.

Euro slides after solid US jobs report

The euro, along with all the other majors, is seeing red against the US dollar today. The markets have reacted to the surprisingly strong non-farm payroll report on Friday, as the June gain of 381 thousand surpassed the May reading of 336 thousand and easily beat the consensus of 240 thousand. The unemployment rate remained steady at 3.6%, while wage growth grew by 0.3%. The solid employment report has raised expectations of another 75bp hike by the Fed at the end of July. A 75bp move will substantially widen the Europe/US rate differential, which is contributing to the euro’s sharp descent today.

The ECB holds its policy meeting six days ahead of the Federal Reserve, on July 21^st. This meeting will likely mark the lift-off for ECB rate hikes, with another increase expected in September. The ECB has been scrambling to catch up to the inflation curve, as it badly misjudged the staying power of high inflation. ECB interest rates are in negative territory, and a modest 0.25% hike, the most likely scenario at the July meeting, may not do much to boost the euro, although perhaps the perception that the ECB is finally tightening will provide some support to the ailing currency.

On Tuesday, Germany releases ZEW Economic Sentiment. The index has been mired in negative territory for months, indicative of strong pessimism about the economic outlook. In June, the index came in at -28.0 and this is expected to worsen to -40.0 in July.

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EUR/USD Technical

• EUR/USD is putting strong pressure on support at 1.001, just above parity. Below, there is support at 0.9849
•  There is resistance at 1.0124 and 1.0221

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