Bloomberg has predicted that the euro could reach parity, albeit requiring an 8% move. In today’s EURUSD price outlook, we discuss 4 reasons why the pair is close to parity.
17 February 2020 | HYCM – I came across a piece this AM on the Market’s Live Blog making a case for parity on the EURUSD pair. The pair currently sits at 1.0835 and so it would need a move of ~8% to move down there.
Reasons why EURUSD parity could continue again
The EURUSD pair has been at parity before with the most recent times in 2014 and 2015 and there is plenty of reasons to think that could continue again:
1. The eurozone economy is weaker than in 2014 and 2015. The slow drag on the eurozone economy is set to remain too with the potential for supply chain disruption from China and Brexit negotiations carrying on in its usual combative and confused state.
2. Bond yields are paying less than in 2014 and 2015.
3. ECB’s main interest rates are lower than in 2014 and 2015.
4. The big economies in the eurozone are struggling: German growth stagnated in Q4, French industrial production is falling alongside German industrial production (-2.8% vs -0.3% m/m), and Italy’s Central Bank Governor Visco sees risks to the country’s economy.
Whereas the US 10 year yield is at 1.58% (around 200bps more than Germany’s rate of -40bps) and Fed Chair Powell says the economy is in a ‘very good place’. It is perhaps not surprising to see why short EUR positions continue to build for the Euro on the COT report last Friday.
EURUSD price outlook
With EURUSD having broken through key support any return back to 1.1000, 1.10500 and 1.1200 look suitable for sellers to re-engage short positions in the medium term.
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