We have been knowing from some time now that the EUR / USD levels at 1.233/1.25 are key to understand what Euro we will have to get used to in the future. The head and shoulder that is forming since 2004 is the neck line on the current prices and a downward break would confirm the end of a bull market that began in 2000. The target then should be largely estimated under the parity and there will be a time and a way to study strategies to increase in bullish Dollars positions. We repeat again that our technical models (especially the one based on moving averages), are still long dollars, but some caution is starting to become a must.
One of the clues that leads us to these considerations is related to the behavior of the percentage above / below the spot price of EUR / USD compared to the theoretical estimated price based on the percentage of the parity of the purchasing power. Since the theoretical equilibrium exchange of PPP is 1.15, we are far less than a 10% from the current price levels; compared to the historical average of the last 10 years, on average, the Dollar was undervalued against the Euro around 16%, with negative peaks in 2008-2009-2011 below -30% and relatively low levels of undervaluation in 2005-2008-2010. As shown by red circles, whenever the percentage undervaluation of the Dollar was greater than -12% (as now), shortly thereafter the market showed a primary minimum of EUR / USD. Is it going to be the same this time too? (Chart source: Bloomberg).

Eur/Usd