The euro and dollar were trading at par on Tuesday morning, meaning that 1 dollar equals 1 euro.
This is the first time the pair has traded at par since 2002, making it another example of how crazy various markets have been so far in 2022.
The euro has lost about 11 percent of its value against the dollar this year, and about 15 percent over the past 12 months. From its 2008 high, it is down 37.6% against the dollar.
Stocks, bonds, commodities, cryptocurrencies and fiat currencies have been volatile this year, in fact, since the start of the covid-19 pandemic more than two years ago.
The dollar’s strength comes as Europe tries to avoid a recession and faces a more dire energy crisis than the United States.
Also, the Fed’s monetary policy is more aggressive than the European Central Bank, as it aggressively raises interest rates and shrinks its balance sheet.
Aside from potential discounts for Americans traveling abroad in Europe, now that equality has been achieved, what happens from here?
What happens when EUR/USD parity?
EUR/USD monthly chart.
Chart courtesy of TradingView.com
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The euro has fallen against the dollar in 11 of the past 14 months, with a one-month gain of just 0.09%. It’s been a tough journey.
The 1.05 to 1.06 area has been very strong support since 2015. That level prevented the euro from almost free fall in early 2015, after the euro fell nearly 24% for nine straight months.
That level is now failing to act as support as EUR/USD touched 1 this morning. From here, the 78.6% retracement – the last meaningful retracement spanning the euro’s entire trading range on the chart – fell to 0.99.
Investors must acknowledge that the trend is down. The question becomes: does the euro find support around current levels?
Of course it can, although at the moment it faces a number of negative catalysts, including: the war in Ukraine, the energy crisis, the Fed continuing to raise interest rates and the ECB’s ability to boost the euro is “quite limited”.
On the downside, I’m looking at 0.99, but below that, 0.95 is something to watch. This is a 161.8% downside extension of the current range.
Below that and below 0.9 could be a talking point – although things in Europe would have to really get worse for that to happen.
On the upside, investors must view the 1.05 to 1.06 area as possible resistance, followed by the declining 10-month moving average. The first area is a former support level that may now turn into resistance, and the 10-month moving average has been active resistance.
Both of the above can work with 1.1+.