Markets

EURUSD Parity? Forex Market Smells Blood

By Jay Meisler

It was a little over month ago that EURUSD traded to 1.1495, just below the top of a 1.05-1.15 range. It has fallen precipitously since then by over 800 pips and most have it targeting 1.0520 with an eye on the 2015 low at 1.0459. This has brought the bears back out of the woodwork and revived calls for parity for this currency pair.

The reason I mentioned the 1.05-1.15 range is that the forex market likes to think in terms of 10 big figure ranges, especially in currencies like the EURUSD and USDJPY (e.g. 1.05-1.15, 115-125). The re-emergence of monetary policy divergence between the ECB and Fed ahead of respective December central bank meetings as the central trading theme has seen an increased call for parity later this year or early next year. Thinking in terms of 10 big figure ranges, while 1.05 is still intact, the range seems to be lowered to 1.00-1.10 with a firm break below 1.05 needed to put 1.00 on the radar.

To give parity a historical perspective, according to the Global-View.com Forex database, the last time EURUSD traded and closed below 1.00 was on December 4, 2002. The current downtrend, using a weekly chart, started in July 2008 at 1.6040. So a visit below parity occurred nearly 13 years ago, the current trend started over 7 years ago and the market now smells blood. The low for the year was set on March 16 of this year after it briefly traded below 1.05 to a low at 1.0459. The subsequent rebound forced those calling for parity into hiding but they have come back into the open.

Will EURUSD Reach Parity?

What seasoned forex traders have learned, sometimes the hard way, is that currencies rarely move in a straight line. However, at times when economies of major currencies are out of sync as they are today between the US and other currencies, there can be powerful moves when there is a monetary policy response from respective central banks. This is where we currently stand with the ECB expected to ease on December 3 and the Fed expected to raise rates on December 16.

This scenario still has to play out and data ahead of it can influence sentiment, especially for the Fed but as long as a rate hike is on the table, a run at EURUSD parity cannot be ruled out. To send a signal for a run at parity, a move through 1.0520 and close below 1.0459 would be needed. To deter those smelling blood, a move back above 1.0830 and then 1.10 would be required.

Jay Meisler, founder

Global Traders Association

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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