The Euro to fall to parity: The bleak outlook continues as Euros shorts increase
Euro headed to parity according to Bloomberg
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 for EUR/USD parity
The EUR/USD pair has been at parity before with the most recent times in 2014 and 2015 and there is plenty of reason 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.
EUR/USD sell on rallies
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.
Author
Giles Coghlan LLB, Lth, MA
Financial Source
Giles is the chief market analyst for Financial Source. His goal is to help you find simple, high-conviction fundamental trade opportunities. He has regular media presentations being featured in National and International Press.
