What are the chances euro and dollar (EUR/USD) hit parity?
Euro's considerable downturn in recent months has caused speculation of parity approaching in EUR/USD. Find out how probable a drop to 1.0000 is by analyzing price history and 10-year rates.
Key points
- EUR/USD last closed below 1.0000 in November 2022
- Markets are currently pricing in a 9% chance of a drop below 1.0000 in 2023*
- US 10Y rates hit decade long highs above 4.5% this week
Can EUR/USD drop to 1.0000?
EUR/USD has fallen over 700 pips since July trade below 1.0500. Hypothetically, if similar movement continues, the euro could be below 1.0000 by the start of 2024. Analyzing a 20-year chart of EUR/USD makes this movement appear less likely. In that time, the pair has spent less than three months below parity. Looking at futures options, there is roughly a 9% chance of a drop below 1.0000 by January.*
A potential factor for the direction of EUR/USD is the divergence of 10-year yields. US 10-year treasury yields have soared to 16-year highs above 4.5% while German 10-year yields have stayed below 3%. If these two prices continue to diverge in the current direction, USD could have more reason to gain on EUR. Conversely, if the gap closes or German yields surpass the US, the euro may rise back against the dollar.
*Probability calculated using the delta on 1.0000 puts in Euro FX futures expiring 1/5/2024
How to trade EUR/USD
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on EUR/USD
Trading forex requires an account with a forex provider like IG. EUR/USD can be found in IG's platform under the 'Major' pairs tab. Many traders also watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like IG’s Trading Academy. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
What is parity?
Parity is an expression of equality. The most common use of parity is in the forex market, where it signifies the point where two currencies have an equal value. That would mean that the exchange rate between the two currencies is exactly 1/1.
Why do interest rates matter to forex traders?
Interest rates impact forex markets because they determine the cost to hold or borrow currencies overnight. The differential between interest rates can cause greater demand for a certain currency over the other.
This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. See our Summary Conflicts Policy, available on our website.
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