EUR/USD Parity Potential, but 1.0200 is Big
EUR/USD has set a fresh two-year-low in the opening days of 2025 trade. And naturally the look goes towards the vaulted parity figure which is at that major psychological level of 1.0000.
There's been only a single instance of the pair trading below that price and it happened amidst an extreme backdrop, when the Fed was ramping up rate hikes in 75 bp increments and the ECB remained as somewhat passive.
The thing to keep in mind is such a move in a currency carries consequence: With the Euro so weak and the USD so strong, consumers in both economies could be incentivized to alter purchasing behaviors. This can make US products far more expensive on a relative basis, thereby making imports cheaper in the U.S. and exports more expensive abroad. That would, in-turn, impact growth for the U.S. and inflation for other countries. And then that would force other economies to tighten rates to stem or try to contain that inflation and now there's motive for the currency to move in the other direction.
This is what happened in EUR/USD in the back-half of 2022, and this is why the pair pushed back-above parity so quickly in Q4 of that year as the ECB ramped up rate hikes.
That then led to two years of range as both the U.S. and Europe tried to maintain some sense of stability with interest rates. That range finally came under fire in Q4 as sellers pushed the downside break in EUR/USD and while there remains disparity between the two economies, the extremes of today don't seem as pronounced as the extremes of 2021 and 2022, which drove the Fed into aggressive hiking cycle.
In EUR/USD, the parity level is an obvious point of interest but remember it was just a few months ago that the pair was holding range resistance around the 1.1200 handle.
The next major level down on EUR/USD is the 1.0200 level, which is the 23.6% Fibonacci retracement of the 2021-2022 major move. That Fibonacci sequence has shown a few important inflections, helping to mark the high in 2023 and then the low in the first half of last year before becoming resistance in Q4 at 1.0611. That was at the 61.8% and 38.2% retracements, respectively, and the price of 1.0200 is the 23.6% retracement of that same sequence. - JS
There's been only a single instance of the pair trading below that price and it happened amidst an extreme backdrop, when the Fed was ramping up rate hikes in 75 bp increments and the ECB remained as somewhat passive.
The thing to keep in mind is such a move in a currency carries consequence: With the Euro so weak and the USD so strong, consumers in both economies could be incentivized to alter purchasing behaviors. This can make US products far more expensive on a relative basis, thereby making imports cheaper in the U.S. and exports more expensive abroad. That would, in-turn, impact growth for the U.S. and inflation for other countries. And then that would force other economies to tighten rates to stem or try to contain that inflation and now there's motive for the currency to move in the other direction.
This is what happened in EUR/USD in the back-half of 2022, and this is why the pair pushed back-above parity so quickly in Q4 of that year as the ECB ramped up rate hikes.
That then led to two years of range as both the U.S. and Europe tried to maintain some sense of stability with interest rates. That range finally came under fire in Q4 as sellers pushed the downside break in EUR/USD and while there remains disparity between the two economies, the extremes of today don't seem as pronounced as the extremes of 2021 and 2022, which drove the Fed into aggressive hiking cycle.
In EUR/USD, the parity level is an obvious point of interest but remember it was just a few months ago that the pair was holding range resistance around the 1.1200 handle.
The next major level down on EUR/USD is the 1.0200 level, which is the 23.6% Fibonacci retracement of the 2021-2022 major move. That Fibonacci sequence has shown a few important inflections, helping to mark the high in 2023 and then the low in the first half of last year before becoming resistance in Q4 at 1.0611. That was at the 61.8% and 38.2% retracements, respectively, and the price of 1.0200 is the 23.6% retracement of that same sequence. - JS
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