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Is a EUR/USD Parity on the Horizon?

gamma hedging

What’s new?

The parity in EUR/USD is increasing on the horizon based on DTCC data. More than 4 billion USD in notional value stake on parity bet.
Citigroup strategists including Adam Pickett recently recommended three-month put options on euro parity to clients, while RBC Capital Markets last week revised its year-end euro call to $1.00.On a technical side, with funds adding euro downside exposure in options, that’s left dealers in a so-called short-gamma position, which can amplify volatility. That means if the euro hits fresh lows, currency desks will have to sell into weakness to hedge their position, only bringing parity closer.

ECB likely starting rate hike at July meeting

European Central Bank Executive Board member Frank Elderson said policymakers can begin looking at raising interest rates from record lows in July, downplaying the risk of a euro-area recession as the war in Ukraine saps growth and fuels already record inflation.
Elderson said the ECB can conclude net asset purchases - a pre-cursor to increasing borrowing costs - “with the first opportunity.”
“That will enable us to start considering policy rate normalization in July, of course, dependent as always on the incoming data,” he told a conference Wednesday in Brussels.

What’s in the pipe?

  • US CPI, Wednesday
  • EIA crude oil inventory report, Wednesday
  • San Francisco Fed President Mary Daly speaks, Thursday
  • US PPI, initial jobless claims, Thursday
  • University of Michigan consumer sentiment, Friday

FX rates

USD/JPY @ 129.24 - bullish trend

EUR/USD @ 1.0552 - Bearish trend

GBP/USD @ 1.2337 - Bearish trend

AUD/USD @ 0.6970 - Bearish trend

USD/CNH @ 6.7525- Bullish trend

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