Euro Hits 19-Year Lows, Goes One Step Closer to Parity

Strong NFP Report Keeps the Fed on Track for a 75-Bps Hike in July

EUR/USD broke the floor at 1.0350 and invalidated a triple bottom scenario, increasing the probability of a move to parity. The pair reached 19-year lows last week as the US Dollar benefited from a shiny Non-Farm Payrolls report. Also, the demand for safe-haven assets increased, and at the time of writing, EUR/USD is trading at 1.0140 after reaching a low at 1.0071.

U.S. inflation will take center stage this week, with some fluctuation expected, and possibly more volatility for the greenback. The Consumer Price Index will show if the rate hikes are succeeding in toning down inflation and will once again open the discussion about a 75 bps hike when the FOMC convenes later this month.

Key Data for the Week Ahead

The U.S. CPI (month over month) is scheduled for release Wednesday at 12:30 pm GMT and is expected to show a reading of 1.1%, while the previous was 1.0%. The consensus for the Core version is 0.6%, the same as last month’s data. The yearly CPI is also expected to increase to 8.8% (previous: 8.6%) but the forecast for the Core version is 5.8%, lower than the previous 6.0%.

Higher inflation will increase the prospects of a 75 bps hike but as you can see, some versions of the CPI are expected to post lower figures, thus it will be an interesting Wednesday, to say the least.

Friday at 12:30 pm GMT we will probably see more volatility on the US Dollar with the release of the U.S. Retail Sales which are expected to accelerate by 0.9% (previous -0.3%). The Core Retail Sales (excludes automobile sales) are also expected to increase by 0.7% from the previous 0.5%.

The last major release of the week comes Friday at 2:00 pm GMT in the form of the University of Michigan Consumer Sentiment survey. It acts as a leading indicator of consumer spending and usually has a medium-to-high impact on the greenback. The expected reading is 49.0, a small change from the previous 50.0.

Technical Outlook – EUR/USD

After the break of the double bottom at 1.0350, the pair accelerated, resuming the downtrend. It looks like the fundamentals are overshadowing the technical side and the ECB’s reluctance to take stronger action is hurting the single currency while investors are flocking to the safe-haven USD.

Speaking strictly from a technical standpoint, we should see a pullback generated by the oversold condition highlighted by the Relative Strength Index. Taking a look at the chart below, we can see that price bounced higher each time the RSI touched its 30 level (oversold).

However, if the fundamentals continue to reign supreme, the pair can still go to parity (1.0000) before a stronger rally occurs. Euro longs are very risky at the moment and we have a week with high-impact releases, which will likely add more volatility and thus, risk.