Despite all the pressure facing the European economy the Euro has managed to remain above the $1.10 level, but it seems the market is predicting its only a matter of time before this critical support level is broken.
The chance that the European currency will fall below $1.10 before the end of August have risen to 49%, according to Bloomberg’s options pricing model.
Risk reversals which is a key barometer of market positioning and sentiment, show that traders are now bearish on the euro over the short and long terms.
Issues surrounding the Euro include the potential for the European Central Bank to reduce interest rates further and introduce bigger stimulus measures than the US Federal Reserve currently has planned
The risk of a no deal Brexit is also expected to weigh on the currency and some analysts predict that in a worst-case scenario we may see it end up on parity with the US dollar.
This week’s meeting at Jackson hole where the main focus will be the highly publicized speech from US Fed President Jerome Powell is likely to be make or break for the Euro as some believe that Mr Powell will not be as dovish as earlier expected and may even talk up the strength of the US economy.
“At the moment, the Federal Reserve is hyper-conscious of the fact that the president of the United States is doing everything in his power to politicize monetary policy-making,” said Ranko Berich, head of market analysis, at Monex Europe
“What we’re seeing from Powell’s policies is to push from that politicizing very strongly, so a big pontification speech at Jackson Hole is the complete opposite of what he’s trying to achieve at the moment,” he added.