The EUR/USD is gradually inching towards parity as the pair continues the steady drop with a 0.87% decline on Monday. However, a slew of negative fundamentals, starting from last Monday’s sharp drop in Germany’s trade balance, has sent the Euro on a tailspin.
Germany’s first trade deficit in three decades, a sharp drop in industrial production and a sharp drop in France’s Trade Balance all contributed to lingering weak sentiment on the single currency, causing it to plunge to 20-year lows.
Germany recorded a trade deficit of 1.0 billion Euros, representing a sharp drop in trade balance as the cost of imports skyrocketed amid a decline in exports. Germany had recorded a trade surplus of 3.1 billion Euros in the previous month and had been expected to register a higher surplus of 4.2 billion Euros. Industrial production in Germany also fell from 1.3% (an upward revision) to 0.2%, worse than the 0.3% increase that the markets had expected. France’s trade deficit also worsened from 12.7 billion euros to 13.0 billion euros, worse than analysts’ predicted negative trade balance of 12.7 billion euros.
All these are stacked against the fundamentals that have boosted the greenback, such as the stellar NFP report that showed that the US economy added more public sector jobs than expected. In addition, the ECB is expected to start raising rates at next week’s meeting, but analysts are now questioning if the ECB would hike amid a weak Eurozone economic situation.
The pair is now testing support at 1.01042, just below the 9 December 2002 low and where the 4 November 2002 high is found. A further decline sends the pair toward the 0.96877 support (21 October 2002 low). Finally, additional downside targets are found at the 17 September 2001 high (0.93299) and 0.90761, where the pair was last seen in February 2001/20 May 2002.
On the flip side, a bounce on the current support provides an opportunity to reclaim 1.04996. The 16 March 2020 low at 1.06384 forms the immediate target above this. The 30 May high at 1.07954 comes in next, while further targets to the north come in at 1.11405 (23 March 2020 high) and 1.13789 (21 February 2022 high).