Parity party all over again for EUR/USD
Nov 22 (Reuters) -The probability EUR/USD trades near parity has increased.
EUR/USD hit a 2-year low Friday after breaking key support and a deeper drop is possible as investors see divergences between U.S. and euro zone economies and Fed, ECB policy paths persisting.
German Q3 GDP grew at only +0.1% versus +0.2% estimates while euro zone November business activity slowed sharply according to PMI reports.
U.S. November services and composite PMIs increased from October with the composite hitting a 31-month high. Prices for goods and services charged to businesses fell to 50.8 from 52.1 in October.
Investors reacted by pricing in deeper cuts from the ECB while discounting a slower pace of cuts from the Fed.
Terminal rate spreads between the Fed SRAM26 and ECB FEIZ5 widened to -205bps while German-U.S. 2-year yield spreads US2DE2=RR traded their widest since November 2022. The widening increased the dollar's yield advantage over the euro which helped drive EUR/USD lower.
Euro positioning may become another downside risk for EUR/USD.
CFTC data 1099741NNET indicate net-short euro positions are minimal.
The break of support near 1.0450 may shift sentiment and lead investors to build short positions, which could increase bearish pressure on EUR/USD.
Technicals continue to highlight downside risks and reinforce reasons for investors to go short euro.
For more click on FXBUZ
(Christopher Romano is a Reuters market analyst. The views expressed are his own)
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