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EUR/USD Resumes Historic Plunge, Approaches Parity

H.S. Borji
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The euro declined around 100 pips against its US counterpart Wednesday, extending a historic five-day losing streak that has seen the EURUSD plunge more than 4 percent.

The EURUSD fell to a fresh 12-year low on Wednesday, bottoming out at 1.0560 in intraday trade. It would subsequently consolidate at 1.0583, declining 100 pips. The pair is testing the initial support at 1.0585. A break below that level would expose 1.0476. On the upside, initial resistance is likely to be faced at 1.0806.

The euro is facing an unprecedented retreat and is falling closer toward parity, as the markets continue to buy US dollars at the expense of other currencies. The US dollar index, a trade-weighted average of the dollar against a basket of six competitor currencies, climbed 0.7 percent to 99.30, a new 12-year high.

The common currency declined around 140 pips on Tuesday, as investors shifted their attention to ongoing deliberations between Greece and its European Union paymasters, who were scheduled to meet on Wednesday for a round of technical negotiations. Tensions reached a boiling point on Wednesday after Athens’ justice minister suggested that Germany pay Greece WWII reparations. Prime Minister Alexis Tsipras accused Berlin of using “legal tricks” to avoid paying those reparations.

Earlier this week the head of Europe’s financial rescue fund granted Athens’ the ability to tap into the Hellenic Financial Stability Fund, which was set up in 2012 to help recapitalize the country’s banks. Under this agreement, Athens is eligible to receive €550 million, providing temporary reprieve to the cash-strapped government. According to Greek government officials, Athens needs €1.5 billion by the end of March to make government wage and pension payments. The government also faces €1.2 billion in loan redemptions to the International Monetary Fund – a member of the “troika” of lenders – over the next 20 days.

The newly-elected Greek government is at odds with its Eurozone partners about its debt obligations. The far-left Syriza party has vowed to put an end to “cruel” austerity tied to the €240 billion bailout program being funded by the IMF, European Union and European Central Bank.

ECB President Mario Draghi assured the markets on Wednesday that the central bank’s bond-buying program was shielding the Eurozone from any potential blowback stemming from the Greek debt crisis. Draghi also predicted a broader recovery for the currency region over the next two years, helping to lift inflation back toward target levels of just under 2 percent.

The ECB began printing money to buy sovereign bonds on Monday as part of its €60 billion a month quantitative easing program, which is expected to last until September 2016.

Updated forecasts from the ECB last week showed the QE program would support growth throughout the euro area. The central bank now sees GDP growth reaching 1.5 percent in 2015, following 0.9 percent growth in 2014. GDP growth will reach 1.9 percent in 2016. Inflation is forecast to be zero this year before rebounding to 1.5 percent next year. Inflation is expected to reach 1.8 percent by 2017.

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