According to independent research firm BCA Research, the EUR/USD experienced a decline in the middle of this week after previously rising, but the upward trend may continue for a period of time before falling to parity.

The institution believes that the recent strength of the euro is due to the poor performance of the US dollar before the Federal Reserve cut interest rates.

Mathieu Savary, Chief European Strategist at BCA Research, said, "The continued strength of the euro caught us off guard. However, this is a common pattern before the Federal Reserve starts cutting interest rates. The EUR/USD will weaken this autumn

But Savary said he is adopting a wait-and-see attitude towards the EUR/USD and will consider selling again before the Federal Reserve's September meeting. In the next four weeks, the euro against the US dollar is likely to surpass the July 2023 high of 1.13. However, this level will constitute a selling point.

BCA stated that industrial production in the eurozone, Japan, and Sweden is weakening, "creating a dangerous environment for the pro cyclical trend of the euro against the US dollar

In addition, the weakness in the employment section of the Eurozone PMI report suggests that employment in Europe may deteriorate in the coming months, which could prompt the European Central Bank to cut interest rates at a faster pace than currently expected by the market.

Savary said, "It is unlikely that the European Central Bank will fall behind the Federal Reserve's easing pace in the next 16 months, as the money market currently expects. Given that the euro has become overbought against the dollar, the risk return ratio of chasing the rise of the euro against the dollar is becoming increasingly low

BCA Research predicts that "once investors begin to worry about a global economic recession and the relative mispricing between the Federal Reserve and the European Central Bank is corrected, the euro against the dollar will test parity early next year

EUR/USD daily chart