EUR/USD price prediction: is another move above parity possible?

The US dollar is king in 2022. Every financial market is affected by the dollar’s strength, and the Fed is in the driving seat.

But even with the dollar trading at its yearly highs and the Fed expected to raise the funds rate by another 75 basis points, contrarian traders may look at some currency pairs to fade the dollar’s strength.

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One of them, despite everything happening in Europe, is the EUR/USD.

Fundamentals favor a weak euro

From a fundamental perspective, the euro is weak and should remain weak. The energy crisis, the war in Ukraine, or rising inflation, are only a few factors weighing on the common currency.

But trading rarely is so straightforward. Moreover, the euro is close to its yearly lows against the dollar, so unless traders see even more dollar strength ahead, the euro may squeeze in the last months of this trading year.

Technicals show a possible bullish squeeze

The technical perspective looks bullish. The main reason is that the EUR/USD exchange rate trades above its 2022 lows.

Another reason is that it formed a five-wave structure, followed by a three-wave one. According to the Elliott Waves Theory, this is the basic setup for a squeeze higher, as traders bet that an extended third wave follows.

If that is the case, the extensión should bring the EUR/USD exchange rate well above parity.

ECB is due next week

And then there’s the European Central Bank (ECB). Yesterday’s inflation data in the Euro area puts pressure on the ECB to act decisively at its next week’s meeting.

A 75bp rate hike is already priced in, but the ECB could surprise given the weak euro and how it contributes to the inflationary picture via expensive imports.

Hence, one should not discard the ECB meeting and the fact that the central bank knows that a weak euro does not help in its fight against inflation. In other words, this is just another incentive to see the EUR/USD exchange rate moving above parity.