EUR/USD extends losses and dips below the parity level

• Eurodollar's reversal from 1.0090 extends below parity.
• The euro accelerated its downtrend after the ECB's decision.
• EUR/USD: Recent developments make the 0.93 target less likely – MUFG.

The euro has pared recent gains on Thursday to put an end to a four-day rally. The pair retreated from six-week highs right below 1.0100, returning to levels below 1.0000 as the US dollar picked up.

The euro dives after ECB’s decision

The common currency’s reversal accelerated after the release of the European Central Bank’s monetary policy decision. As widely expected, the bank hiked rates by 75 basis points for the second consecutive time, in an attempt to tame historical inflation, raising the deposit rate to 1.50%.

Beyond that, ECB Chair, Christine Lagarde, reiterated the bank's commitment to continue hiking rates, in spite of the downside risks for the economy which could lead to higher unemployment levels.

On the other hand, the US dollar has shrugged off the previous days' weakness to post a moderate recovery. An upbeat US GDP reading, which has shown an unexpected 2.6% economic expansion in the fourth quarter, has eased concerns about a recession providing a fresh boost to the US dollar.   

EUR/USD: Recent developments make the 0.9300 target less likely – MUFG

Currency analysts at MUFG bank observe that the recent developments and the USD sell-off make the 0.9300 target less likely: “Overall, recent developments, including the plunge in the price of natural gas in Europe and broad-based USD sell-off have made it less likely that EUR/USD fall as low as our year-end target of 0.9300 even after today’s less hawkish ECB policy update.”

Technical levels to watch