The EUR/USD hit new cycle lows on Monday at 1.0050 as it continues to approach parity. The next half of 2022 is unlikely to foster conditions for euro appreciation as the European economy could be in a technical recession, explained analysts at National Bank of Canada. They expect the euro to remain low in the near term and will require improvements for energy prices and supply to catch a bid. 

Key Quotes:

“The first half of 2022 can only be described as eventful for the Eurozone. The common currency area has faced spiking energy prices, a war on its borders and surging inflation. The aforementioned factors have given no traction to the euro, the latter having slipped from 1.14 at the end of 2021 to nearly parity (1.01) as of this writing.”

“The next half of 2022 is unlikely to foster conditions for euro appreciation as the European economy could be in a technical recession. Some of the recent euro weakness can be retraced to the ECB emergency meeting on the 15th of June. The spread between an Italian and German 10y bond had reached 240 basis points, prompting serious discussions. The central bank promised an anti-fragmentation tool to help alleviate supposedly unjustified interest-rate spreads.”

“Altogether, the picture for the European economy is far from rosy and it may already be in the throes of a technical recession. As such, we expect euro to remain low in the near term and will require improvements for energy prices and supply in order to catch a bid.”