EUR/USD hit a five-year low after breaking below the 2020 yearly low, and shorts are gearing up for a potential a test of the 2017 yearly low or possibly even parity.
Russia's halt of gas supplies to Poland and Bulgaria nL2N2WO37M increased uncertainty in Europe, adding to worries about high inflation and potentially weaker economic outlooks.
Germany downgraded its growth outlook nS8N2VS021 and Fitch ratings said Italy's 2022 growth prospects have deteriorated significantly nFWN2WP1DR.
Markets are reacting by paring back ECB rate hike expectations.
December 2023 Euribors FEIZ3 struck a four-session high and is poised to break key short-term resistance, which would likely squeeze shorts.
German two-year yields DE2YT=RR struck a four-session low and broke trend line support off the March monthly low.
Euro zone and U.S. rates are falling but spreads between them are likely to remain in the dollar's favor as investors expect the Fed to hike aggressively.
Options investors are more wary of the downside.
Risk reversals EUR1MRR=FN indicate vol premiums for EUR/USD puts over calls is increasing again and appear poised to rise significantly.
Technicals remain bearish.
Daily and monthly RSIs are oversold but are not diverging which implies downside momentum is intact.
EUR/USD shorts have the 2017 yearly low in focus and will target parity if that low gives way.
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