Stocks are doing quite well despite a recession risk, which is in focus lately as CB is hiking rates despite the economic downturn in the last few months. But, it seems that word “recession” is not in FED’s vocabulary now, and this may not be change so soon after today’s NFP numbers came out above expectations, so FED will stick with hawkish policy. ECB is also trying to follow the FED and fight the inflation, which is a “must” as EURUSD moves towards parity and is currently trading at a 20-year low. We must keep in mind that a weak currency in the eurozone is making inflation even worse when you are a net importer. So, I think that inflation can come down faster, if the currency would be stronger.
From an Elliott wave perspective we see pair trading in a higher degree complex correction down from 2008 high, now possibly in late stages with price approaching 78.6% Fibonacci level that comes in around parity.
Technically, I assume that Eur can be much higher in years ahead, but the question is what will be the catalyst;
Higher EUR interest rates? Ukraine-Russia solution? Downturn of the USD? Maybe foreign exchange interventions?
None of us can answer this question at the moment, but technically I think that 1:1 Eur vs Usd is clearly an interesting level.
However, I think if EURUSD pair moves below parity the ECB intervention may happen. The last time they acted alone was back in 2000 when EURUSD was trading around 0.9000. So firstly, they will try to bring down inflation with higher rates, but then I think intervention is also an option, especially if pair would approach that same 0.9000 level.
Trade well,
Grega
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