The euro-dollar pair has already tested the 4th figure today. Bears have firmly settled in the area of five-year price lows, developing a downward trend. And although traders failed to gain a foothold below the 1.0500 mark on the first attempt, there is no doubt that the downward trend will continue, at least in the medium term.
More and more often, experts say that the pair is moving towards parity, given the strength of the downward movement and the prevailing fundamental background. Such a scenario is not excluded at all, although, in my opinion, it will be very difficult for the sellers of the pair to overcome the support level of 1.0350 and generally go below the third figure. We are talking about 20-year price lows, at which many traders will rush to fix profits, since below is uncharted territory that only old-timers of the foreign exchange market remember.
The EUR/USD pair was below the 1.0000 mark in the period 1999–2003, so it will be very difficult for bears to approach the most powerful support levels. Now the pair is approaching more familiar price lows, which were tested relatively recently, in the period 2015–2017, when the Federal Reserve gradually raised the interest rate. The process of tightening monetary policy then was quite smooth: in 2015, the regulator raised the rate once, in 2016 – also once, in 2017 – three times, in 2019 – twice. At the same time, a 25-point step was used throughout the entire time.
This year, the Fed intends to act more aggressively and faster. No one doubts that the Fed will raise the rate at the May meeting by 50 points. There is also a high probability of a 50-point increase in June and July. The option of a 75-point breakthrough following the results of the June meeting is not excluded. Recall that such a radical scenario was proposed by St. Louis Fed President James Bullard, who has the right to vote in the Committee this year. And not all of his colleagues answered "no" to his initiative. If the minutes of the May meeting (which, as you know, is published 2 weeks after the meeting itself) reflect the relevant discussions on this issue, the dollar has received a strong impetus for its growth.
However, dollar bulls still enjoy significant support. After the latest statements by the members of the American regulator, the divergence of the positions of the Fed and the ECB began to play with new colors: at a time when the Fed is ready to raise the rate in 50-point steps at two or three meetings, the European Central Bank does not dare to designate even the date of one round of rate hikes. According to Christine Lagarde, this will happen after the completion of the Asset Purchase Program (APP) in the third quarter, approximately in a few weeks "and possibly months." Of course, among the ECB members, there are "hawks" who declare the need to raise rates in July. But against the background of the Fed's rigid, clear, and categorical position, the position of the European regulator looks faded and blurry.
In addition, investors are getting rid of the euro for other reasons. The energy crisis in Europe has already acquired quite concrete outlines. Recall that European Commission President Ursula von der Leyen this week demanded that European companies not pay for Russian gas in rubles, as Moscow requires. Literally the next day after this call, Poland and Bulgaria were left without blue fuel from Russia: state-owned enterprises of these countries announced the termination of supplies from Gazprom. At the same time, many experts warn that if the Russian side finally blocks energy flows to Europe, the Alliance's industrial complex will have to significantly reduce production, plunging the European Union into recession.
On the one hand, not all representatives of the European market are ready to fulfill the calls of Brussels. According to the Financial Times, the largest energy companies in Germany, Austria, Hungary and Slovakia (including German Uniper and Austrian OMV) are preparing to open ruble accounts with Gazprombank in Switzerland. On the other hand, the position of the European Commission is categorical, so the sanctions confrontation will have its own development.
Against the backdrop of the energy crisis and geopolitical tensions, the European Central Bank may take a more cautious stance, especially on the issue of raising rates. According to a number of analysts, if the ECB changes its mind about tightening monetary policy this year (or at least transparently hints about it), then the EUR/USD pair may indeed reach parity. In my opinion, this will happen under one obligatory additional condition – if, against the background of all other circumstances, the negotiations between Russia and Ukraine are not crowned with success. In the event that Moscow and Kyiv reach an agreement, the EUR/USD parity will be an unattainable target for the pair's bears.
However, at the moment, corrective pullbacks are still advisable to use to open short positions. The nearest downward target is located at 1.0460, which is the lower line of the Bollinger Bands indicator on the 4-hour chart.
