USD Dominates, EURUSD Trades at Parity
12 July 2022
Risk-averse trading continued on Tuesday, sending stocks lower. At the same time, investors remain ultra bullish on the USD, expecting another record inflation print on Wednesday, likely leading to more rate hikes by the Fed.
On the other hand, fears of a deepening global energy crisis weigh on market sentiment as the largest pipeline bringing Russian gas to Germany began ten days of yearly maintenance. Moreover, there are mounting concerns that the closure may continue for longer than expected, particularly as the European Union is ready to implement a phased embargo on Russian oil and restrict marine insurance for any tankers carrying Russian crude.
US dollar strengthens again
The EU is on the verge of an economic collapse as Germany just recorded its first trade deficit since 1991, sending the EURUSD pair to parity for the first time in 20 years. Still, even more losses are expected for the euro.
Moreover, GBPUSD dropped to the lowest level since March 2020 as the Conservative 1922 Committee of the UK announced that the nomination period for Boris Johnson's successor will begin on Tuesday and end on Tuesday. They would cast subsequent ballots until they reached the top two, which may occur early next week. Finally, on September 5, the outcomes will be made public.
Overall, the whole FX market is showing heavy demand for the US dollar as the safe-haven currency in anticipation of a deep global economic depression.
Equities are weaker today, but losses are not dramatic, and main US and EU benchmarks remain above their recent cyclical lows. However, the medium-term trend remains bearish. Thus, rallies are expected to be sold.