Could EUR/USD Drop to Parity?
2025.01.14 10:15
The managed to bounce back along with all risk assets after hitting a new multi-year low sub 1.02 handle on Monday. The single currency managed to rise a little further on Tuesday, at the time of writing, with the pair climbing to 1.0277, before easing back a little ahead of US data.
Despite its recovery, the EUR/USD remains on a downward trajectory, now eyeing a potential fourth consecutive monthly decline. The bearish momentum has been fuelled by a surging , which has been supported on the back of stronger labor market data and expectations inflationary pressures will return under Trump. Combined with weak economic data from the Eurozone and China, this is all helping to keep the trend bearish.
How High Will the Dollar Rise?
The greenback continues to dominate, supported by rising US bond yields and robust economic data. Investors have been repricing US interest rates higher, driven by persistent concerns and unexpectedly strong labor market data.
December’s report showed remarkable resilience, with job gains significantly outpacing expectations. As a result, US bond yields have climbed further, with the benchmark nearing its October 2023 highs of 5.02%. This upward trajectory in yields continues to attract capital into the , keeping the EUR/USD under bearish pressure.
Rising Yields Also Hurting Risk Appetite
Of course, it is not just the euro that the dollar has been rising against. Rising bond yields and diminishing hopes for further US rate cuts have given the a solid boost, pushing it higher for the seventh straight week and setting it up for a potentially fourth consecutive monthly gain. On Friday, bond yields hit 5%, inching closer to October’s peak of 5.178%, while the 10-year yields aren’t far behind, hovering near 4.80%.
It’s not just the US seeing this trend. In Europe, bond yields are climbing steadily, with German, French, Spanish, and Italian yields all extending their upward momentum. Over in the UK, the yield has surged past last year’s high, touching levels not seen since the 2008 financial crisis at nearly 5%. Even Japan has joined the mix, with its hitting 1.25% overnight, its highest level since 2011.
The takeaway? Bond yields are rising across the board, fuelled by resilient US economic data and persistent global inflation—except for China. With higher yields offering attractive returns, investors may hesitate to buy overbought growth stocks and government debt is proving a tempting alternative. This is an additional bearish factor for risk-sensitive currencies like the euro.
US CPI and Chinese GDP Among This Week’s Highlights
After today’s data is out of the way, all eyes will be on the US Consumer Price Index () release on the US economic calendar on Wednesday. Any indication of stubborn inflation could dash any remaining hopes of a rate cut in the first half of the year, further bolstering the dollar. Conversely, a surprisingly weak CPI print could offer the Euro some breathing room, although a significant shift in market sentiment seems unlikely without a major downside surprise.
Later in the week, Friday’s Chinese release, along with retail sales and industrial production data, will also be in the spotlight. The Chinese economy’s sluggish performance has already impacted global markets, with weaker growth dampening demand for European exports. Any further signs of economic slowdown in China could exacerbate concerns about the Eurozone’s growth prospects, amplifying the bearish EUR/USD forecast. However, if we see a surprise and the data beats, then this may be cheered by the euro traders.
Technical Analysis: Where Is EUR/USD Headed?
Source: TradingView.com
The near-term outlook for EUR/USD remains tilted to the downside, with the pair likely to test and possibly break below the parity (1.000) level in the coming weeks, particular if we see further sharp rises in US yields. Short-term term support levels include 1.0200 and 1.0100.
In terms of resistance levels to watch, 1.0300-1.0340 now marks a key resistance zone, having previously served as support. The bearish trend line comes in just above this zone, too. While below these levels, the path of least resistance on the EUR/USD is unambiguously bearish.
Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.
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