The latest rise of the euro is approaching a key level that could either stop its momentum or unlock the next step to $1.20, a level last seen four years ago, Bloomberg reports, writes UNN.
Details
The single currency has approached $1.17 - an area that holds the largest notional volume of options for the euro to rise this month, according to Depository Trust & Clearing Corporation data. This makes it a potential tipping point.
A break and hold above this mark could open the way for an accelerated advance to $1.20, a level last seen four years ago. However, some profit-taking or rebalancing of flows should be expected if the current level is maintained, the publication writes.
HSBC strategists raised their year-end forecast for the euro to $1.20 from $1.15 last week, predicting a general weakening of the dollar in the coming months. Danske Bank A/S analysts last month reaffirmed their 12-month forecast for the euro at $1.20, while Deutsche Bank AG strategists predict a rise to that level by December.
On Wednesday, the euro rose to $1.1645, its highest intraday level since October 2021, as easing geopolitical tensions and softer US economic data fueled new demand for the single currency. The announcement of a ceasefire between Iran and Israel, as well as Federal Reserve Chairman Jerome Powell's statement on the "possibility of many paths" for monetary policy, which opened the door for an earlier US interest rate cut this year, affected the dollar and stimulated the euro's growth.
Recent results show that American developers have growing inventories amid growing economic problems. New home purchases in May fell the most in nearly three years, according to government data released on Wednesday.
US interest rates "may fall faster in the coming months than in most of the rest" of the G20 countries, which will be a new catalyst for the euro to rise to $1.20, according to Shahab Jalinus, Alvis Marino and Vasily Serebryakov of UBS Investment Bank. They predict that the single currency will be at $1.23 by the end of the year.
Options markets suggest that investors remain confident in the euro's strengthening. The shift occurred after a brief period when the dollar found support from rising oil prices.
The indicator points to a gradual increase in the euro in the future, and traders expect the currency to become increasingly stronger over the next month, quarter and year.
And the overall picture remains positive. DTCC data shows that more than 60% of the notional volume of euro options this month was in favor of call options, the publication writes.