EUR/USD extends gains above parity and nears 1.0100

• The euro rallies further to reach five-week highs at 1.0085.
• Fed pivot expectations are hurting the USD.
• EUR/USD: Holding above 1.0000 the pair could reach 1.03  – Scotiabank.

The euro is performing a surprising recovery after having appreciated more than 3% on a four-day rally. The common currency has stretched higher on Wednesday’s US session, breaching the previous session top at 1.0050 to reach 1.0085.

Fed tightening slowdown is hammering the USD

The US dollar has been on the defensive over the last sessions weighed by market expectations of a certain softening on the Federal Reserve’s tightening path. A batch of downbeat US indicators has revived concerns that escalating interest rates are dampening growth.

A news report by the Wall Street Journal suggesting that Fed officials might be discussing how to communicate lower rate hikes in the months ahead has given further backing to that thesis. This new scenario is weighing on the USD, which has surged about 20% this year, buoyed by the Fed’s hawkish stance.

On the other end, the market awaits a second consecutive jumbo rate hike by the European Central Bank on Thursday. With inflation at record highs, the ECB a 0.75% rate hike is priced in, which has been fuelling demand for the common currency over the last few days.

EUR/USD: Holding parity suggest further gains toward 1.03 – Scotiabank

Currency analysts at Scotiabank see risks skewed to the upside if the pair consolidates above 1.000: “Gains yesterday through key trend resistance off the Feb EUR high are holding and what was resistance now becomes key support (0.9935) (…) Note that parity (0.9998) is the 23.6% retracement of the 2022 EUR decline; holding parity suggests more gains towards 1.03 (38.2% retracement at 1.0284).”

Technical levels to watch