The dollar continues to advance on all fronts despite worsening consumer sentiment in the United States and a rather sharp decline in new home sales. Yesterday's macroeconomic reports ended up in the "red zone" but were ignored by the market.
Parity on the Horizon
The greenback continues to enjoy increased demand, allowing the EUR/USD pair to break below the 1.0600 support level and now consolidate within the range of the 1.0000 figure. In light of recent events, some experts have already begun discussing the prospects of reaching parity. Such assumptions are made cautiously and hypothetically at this point, but judging by the dynamics of the downward trend, this scenario cannot be ruled out. There are just over 500 pips left to the 1.0000 mark—whether this is a lot or a little is debatable.
On one hand, the pair has shown a clearly defined downward movement for 11 consecutive weeks, falling 700 pips since mid-summer. In other words—figuratively speaking, half the journey is completed. On the other hand, it is evident that the closer EUR/USD sellers get to the parity level, the harder it will be for them to gain each conquered point. However, such challenges may arise around the 3-2 figure and below (assuming the bears don't weaken their grip). For now, the path to the fourth figure is open. The current fundamental background supports further price decline.
As mentioned earlier, yesterday's macroeconomic reports failed to provide support for EUR/USD buyers. Rising dynamics in the oil market, increased Treasury yields, and an impending political crisis in the United States (resulting in a shutdown) are all fundamental factors pushing the safe-haven greenback higher. The U.S. Dollar Index today reached a 10-month high, rising to 106.030. Major dollar pairs in the "major group" have responded accordingly. For instance, the EUR/USD pair updated a 7-month low, reaching the midpoint of the fifth figure.
"The Specter of a Shutdown"
Yesterday, the U.S. Senate voted to begin debating approval of a temporary budget to avoid a shutdown (a federal government shutdown will occur at midnight on Sunday if the budget is not approved). This was an expected move by the senators, but the issue of a shutdown remains on the agenda.
Besides the upper chamber of Congress, there is also the lower chamber, where the political landscape is somewhat different. The leaders of both parties in the Senate have proposed a compromise temporary budget to the House of Representatives, which involves a proportional extension (until November 17) of the current budget's effectiveness. Politicians hope to find a compromise in the next month and a half and pass a permanent budget.
But judging by the preliminary statements of House Speaker Kevin McCarthy, this scenario will not come to pass, and starting Monday, hundreds of thousands of government employees will not go to work. McCarthy stated yesterday that he will work to ensure that all Republicans support the temporary funding bill. However, the speaker is being deceptive because simultaneously with this statement, he intends to include strict border and immigration restrictions in this bill, which are unlikely to be supported by many Democrats in the House of Representatives and the Senate.
Furthermore, the far-right wing of the Republican faction in the lower house of Congress (the so-called "Trumpists") openly opposes passing the budget and is intentionally leading the country toward a shutdown. It seems that further events will unfold according to a negative scenario.
Amid rising risk-off sentiments, the safe-haven dollar feels rather comfortable as it enjoys increased demand.
Treasury Yields and the Oil Market
The rise in Treasury yields also provides significant support to the greenback. The yield on U.S. 10-year Treasury bonds has exceeded the 4.5% target (the highest level since August 2007) in light of hawkish expectations regarding the Fed's future actions. Recall that the updated dot plot suggests another rate hike this year. In addition, Fed Chairman Jerome Powell, following the September meeting, also hinted at another round of monetary policy tightening, citing rising overall inflation.
Another ally of the dollar is the oil market. Amid growing concerns about fuel shortages, oil prices continue to rise. In particular, Brent crude oil has approached $94 per barrel after a minor correction. The price of oil is steadily increasing, and this fact raises legitimate concerns about inflation.
During the U.S. trading session on Wednesday, official data from the U.S. Department of Energy will be published. According to forecasts, these data will reflect a reduction in oil reserves by 320,000 barrels, gasoline by 120,000 barrels, and distillates by 1.3 million barrels. If the release matches the forecasts, the oil market may again demonstrate an upward movement, indirectly supporting the dollar.
Conclusions
The current fundamental background supports further decline in the EUR/USD pair. The nearest and primary (for now) target of the downward movement is the 1.0500 level, which corresponds to the lower Bollinger Bands indicator line on the D1 timeframe. Long positions are inherently risky, and selling should be considered on corrective pullbacks.