The Euro has been rising steadily since its return to parity in late 2013. As it’s getting close to the technically significant 1.1000 handle, it’s worth having a look at the fundamentals. Are there enough fundamentals to overcome the resistance?
The main theme so far has been, “never bet against the central bank”. On the other hand, that doesn’t mean the central banks’ plans will actually work out. The currency pair was driven by two central banks dealing with an essentially the exact same domestic problem: Inflation. The EURUSD has experienced a significant swing due to the fact that European inflation is very different from US.
Reverting to the norm
For the majority of its existence, Euro was valued at more than the US dollar. This has left the pair well above parity. The sudden drop in the Euro with respect to the dollar coincided with the Fed’s aggressive move higher in interest rates while the ECB waited several months to start hiking. Now that both central banks are talking about “normalization”, does that mean the pair is going to return to their “normal” level above parity?
It’s still not enough…
