16.08.202212:09 Forex Analysis & Reviews: EUR/USD: euro on way to parity with dollar

The US dollar is rather strong now, so the rally is likely to resume. It is also important that the price breaks through 106.00 swing resistance. Activity should increase if the quote breaks through 107.00 resistance.

There are several factors behind this. Weak economic data on the largest economies has sparked fears of a global recession and fueled demand for safe havens. The dollar receives additional support from expectations that the Fed will continue to tighten monetary policy despite signs of weakening inflation and slowing growth.

Traders are now focusing on a series of speeches by Fed officials and the FOMC minutes, which could shed some light on the regulator's future monetary stance.

Geopolitics is also now driving the dollar up as tensions around Taiwan are escalating. Following Nancy Pelosi's trip, a delegation of American legislators arrived on the island for a visit. No wonder, tensions between the US and China are on the rise.

A relatively strong economic outlook for the US can provide support for the greenback as well.

Commerzbank expects a recession in the US at the beginning of the next year. There is still a long way to go before the Fed will be deeply concerned about the state of the American economy. It is still unclear how weak the economy could be. Therefore, it is too early to price a recession in the dollar exchange rate.

The US retail sales report due on Wednesday should confirm the strength of the economy. There are no clear signs of a slowdown in growth, and the hawkish Fed is boosting the dollar.

Today, data on US building starts and building permits for July as well as the ZEW reports for Germany and the eurozone could affect EUR/USD.

Germany's ZEW economic sentiment fell to -55.3 in August versus -53.8 in July, the worst result since October 2008. The figures disappointed the market because it did not expect such a deep plunge.

In addition, current conditions came in at -47.6, down from -45.8, the lowest since April last year.

These results indicate a further slowdown in Germany's economic growth. Moreover, GDP is expected to be lower than economists forecast. Meanwhile, continuing inflation and potential additional costs for heating and electricity cause a decrease in profit expectations for the private consumption sector.

At the same time, expectations for the financial sector are improving amid the possibility of a further increase in short-term interest rates. This does not mean that the euro can recover. On the contrary, financial experts are now revising their forecasts for EUR/USD, anticipating the euro to hit parity again.

ING believes that the most popular currency pair can reach parity in the very near future.

EUR/USD is literally one step away from this year's lows, and a slightly stronger dollar over the next two days could easily push the euro to new lows.

Short-term resistance is seen at 1.0200.

Despite the oversold status, the pair will suffer additional losses if traders fail to protect the 1.0150 level. Judging by today's dynamics, it is highly unlikely.

Meanwhile, analysts insist that EUR/USD must enter a technical correction before going down again. If this scenario is no longer relevant, the pair will head straight to 1.0100 and then to 1.0050. It is also important to pay attention to the closing level of the day.