EUR/USD Forex Signal: Another Drop to Parity Can’t Be Ruled Out

Bearish View

Sell the EUR/USD pair and set a take-profit at 1.005.

Add a stop-loss at 1.0245.

Timeline: 1 day.

Bullish View

Set a buy-stop at 1.0240 and a take-price at 1.0365.

Add a stop-loss at 1.0150.

The EUR/USD price declined sharply as risks of more economic pain in Europe continued. The pair dropped to a low of 1.0155, which was the lowest level since August 5th of this year. It has fallen by more than 2% from its highest point this month.

EU Recession Odds Rise

The EUR/USD price declined after a survey showed that risk of a euro area recession rose to the highest point in almost two years. According to Bloomberg, the probability that the bloc will sink to a recession this year rose from 45% to 60%. A recession happens when an economy contracts for two straight quarters.

Most economists believe that Europe, led by Germany, are facing their worst economic crisis in decades. Inflation has surged to a multi-decade high while supply chain challenges and prolonged drought have made the situation worse.

Russia has slashed the amount of natural gas it sells to Europe dramatically in the past few weeks. At the same time, Norway has hinted that it could reduce its electricity exports to the bloc because of low water levels in its hydropower stations.

At the same time, many European rivers have substantial low water levels, which is affecting shipping routes. Goods worth over $80 billion are transported using barges in several rivers. Meanwhile, analysts expect that inflation will average about 8% this year and 4% in 2023.

The EUR/USD price declined after the latest weak economic data from China. The numbers showed that the countrys economy is suffering because of the Covid-zero strategy. As a result, the central bank decided to lower interest rates on two bonds.

The next key data to watch will be the upcoming US building permits and housing starts data. Economists expect that building permits declined from 1.696 million to 1.650 million. They expect that the housing starts dropped from 1.55 million to 1.540 million.

EUR/USD Forecast

The EUR/USD price declined sharply in the overnight session. It fell to a low of 1.0158, which was the lowest level since August 5. The pair dropped below the ascending trendline that is shown in purple. It has also moved below the 25-day and 50-day moving averages. The pair moved to the first support of the standard pivot point.

Therefore, the pair will likely keep falling as sellers target the second support at 1.005. A move above the resistance at 1.0232 will invalidate the bearish view.