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EUR/USD Analysis Overview: Parity Caps Euro Upside

By Justin Mcqueen

10:40, 6 October 2022

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In this article:
1.05002 USD
0.00328 +0.310%

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Euro rejects parity against the US dollar - Photo: GettyImage

EUR/USD Rebound Capped at Parity

Much like the equity space, the recovery in the Euro (EUR/USD) has run out of steam with gains capped at the psychological level of parity. At the same, just above parity, the 55DMA also remains formidable resistance, which has seen rallies in EUR/USD falter throughout the majority of the year. As such, until the Euro can eclipse its 55DMA, from a technical point of view it is difficult not to be bearish on the currency.

Trading With Moving Averages

Elsewhere, yesterday’s better-than-expected ISM Non-Manufacturing PMI, coupled with hawkish Fed commentary had prompted market participants to become more cautious that we will see a pivot from the Federal Reserve in the short term. The stronger-than-expected data provides the Federal Reserve with more room to raise interest rates (Strong data = bad news for risk appetite) and hence equity markets came under pressure on Wednesday’s session. Meanwhile, both Fed’s Bostic and Daly pushed back on the notion that rate cuts will occur next year, which is likely to be echoed by the plethora of Fed speakers due to speak today (Fed’s Cook, Evans, Waller and Mester all due to speak today). As shown in the chart below, the Fed Funds rate priced in for December 2023 has partially reversed the recent drop.

Fed Funds Market Pricing December 2023

Fed Fund Futures December 2023. Photo: Source: Tradingview

In my view, it is unlikely we will see a pivot this soon, inflation is still far too high and the loosening in financial conditions is the opposite of what the Fed is trying to engineer. As such, the downside in the USD is likely to be transitory, particularly when there is little in the way of alternatives. That said, and as I mentioned yesterday, upcoming data (NFP + US CPI) will be the key determinant in guiding market direction. 


136.84 Price
-0.160% 1D Chg, %
Long position overnight fee 0.0051%
Short position overnight fee -0.0116%
Overnight fee time 22:00 (UTC)
Spread 0.008


1.05 Price
+0.310% 1D Chg, %
Long position overnight fee -0.0076%
Short position overnight fee 0.0030%
Overnight fee time 22:00 (UTC)
Spread 0.00006


0.67 Price
+0.420% 1D Chg, %
Long position overnight fee -0.0036%
Short position overnight fee 0.0007%
Overnight fee time 22:00 (UTC)
Spread 0.00006


1.22 Price
+0.480% 1D Chg, %
Long position overnight fee -0.0032%
Short position overnight fee 0.0008%
Overnight fee time 22:00 (UTC)
Spread 0.00013

How to Trade EUR/USD

EUR/USD Chart: Daily Time Frame

EUR/USD Chart. Photo: Source: Tradingview

ECB Meeting Minutes 

Looking ahead, market participants will digest the latest ECB meeting minutes. Keep in mind that at the most recent monetary policy meeting, the ECB delivered a 75bps hike. The question going forward will be whether the central bank will go ahead with similar-sized rate increases, which according to ECB sources appears to be the case, while any commentary to suggest that the ECB are looking to move interest rates into restrictive territory will be closely watched.

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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