Commerzbank's Critical Euro Forecast: "It Could Fall to Parity"

Commerzbank's Antje Praefcke warned that the U.S. data to be released this week could push the euro towards parity levels while maintaining the strength of the dollar. Praefcke noted that views regarding the resilience of the U.S. economy compared to other developed countries bolster market expectations.

The euro rose by 0.3% today to 1.0341 dollars after falling to 1.0227 dollars, the lowest level in two years, last Thursday. This week, the U.S. durable goods orders, ISM services index, JOLTS job openings, ADP private payrolls, and Friday's Non-Farm Payroll figures are closely monitored by the markets.

Inflation expectations and ECB policies in the Eurozone: Economists at Pantheon Macroeconomics predict that December inflation figures could exceed expectations, yet the European Central Bank (ECB) will continue its policy of lowering interest rates. According to economists, the annual inflation rate announced at 2.2% in November is expected to rise to 2.5% in December.

Pantheon’s forecasts suggest that this increase will be above the market expectation of 2.4% but below the ECB’s projections. This situation could allow the ECB to decrease interest rates by another 25 basis points at the management meeting scheduled for January. The macroeconomic weaknesses in Europe and energy supply issues are among the core justifications for this policy.

Data calendar in the U.S. and Europe: While the Dollar Index (DXY) maintains a strong stance near 109, the EUR/USD pair closed last week at 1.0308, down 1.1%. The macroeconomic data to be released in the U.S. this week and the policies that Trump will implement upon taking office will shape expectations regarding the Fed's interest rate policies.

The Non-Farm Payroll data to be released in the U.S. on Friday will be closely monitored by the markets. San Francisco Fed President Mary Daly noted that inflation remains above target, which is a concerning issue for policymakers. In Europe, the effects of the energy crisis and weak economic data continue to be monitored as they affect the markets.

Technical outlook: Critical support and resistance levels: Weakness in technical indicators for the euro/dollar pair draws attention, with the last week's low level of 1.0225 potentially coming back into focus during downward movements below 1.03. In upward movements, a breakout above the 1.0350 resistance could lead the pair towards the 1.041 and subsequently 1.044 regions.