Early Morning Call: EUR/USD on the brink of parity; oil, base metals down

Indices outlook

Japan led losses in Asia-Pacific region today, following a negative session in the US yesterday.

The Nasdaq ended a five-day winning streak by posting a fall of 2.26% yesterday. Japan producer price index rose by 0.7% in June compared to May. Year-on-year (YoY), the index increased by 9.2%.

In Australia, NAB business confidence fell more than expected to one in June, from six the previous month.

In Europe, equity markets opened in the red, remaining on Monday’s path. In the UK, the BRC retail sales monitor fell more than expected, by 1.3% in June compared to June last year, and contracting for the fourth straight month.

British Retail Consortium chief executive, Helen Dickinson, said “sales volumes are falling to a rate not seen since the depths of the pandemic, as inflation continues to bite and households cut back spending,”

Behaviour is also changing. Consumers are attracted to cheaper brands when it comes to food, and postpone purchases of kitchen appliances and homeware. All these macro-economic indicators support the dollar.

Forex

This morning USD showed gains against most of the major currencies.

The Australian dollar remains at a two-year low, as energy and commodity prices fall under the pressure of new China Covid curbs. Only the Japanese yen marginally rose against the greenback.

One currency pair has attracted most f traders’ attention. EUR/USD is now just a few pips away from parity, and it is very unlikely the trends will stop these. Economic headwinds for the eurozone are at hurricane force. Yesterday the much-awaited day arrived: Nord Stream 1 was shut off for routine maintenance until 21 July. The maintenance period has stoked speculation around the possibility of Russia delaying the resumption of gas flows once maintenance has been completed.

Add this to rising inflation, the serious risk of recession and hawkish rhetoric from the European Central Bank (ECB) wanting to turn off the money taps.

Today is German ZEW day. Economic sentiment is forecast to drop by 10 points to -38.

Commodities

Fears of a global economic slowdown continue to weigh on oil prices.

This morning WTI is on its way down towards $100 per barrel. China, the world’s largest crude importer, is also dragging prices down with new Covid restrictions that could affect demand.

Elsewhere on the commodity market, WTIgold is getting closer to September 2021 support at $1,721 and silver hit a new two-year low.