Currency trading is all about small numbers. But now a large number is at the top of every trader's screens: 1.
That’s because with euro is now at trading at 11-year lows versus the U.S. dollar, and the European Central Bank to announce its own version of quantitative easing, many traders expect the euro to soon have the same value as a dollar, or as they call it in the currency pits, parity.
Should a euro QE happen, it won’t come as a surprise to most people. For some time now, the markets have been anticipating the ECB to add euros to stimulate the euro zone economy. In the last six months, the euro has devalued by 14 percent and is now trading at around $1.15. That's below the $1.17 it debuted at in 1999.
ECB President Mario Draghi is expected to announce a QE measure this coming Thursday. The size of the stimulus will dictate where the euro will head next, according to one macroeconomics expert.
“The larger the program that is announced, the more the euro will sink,” said Gina Sanchez, founder of Chantico Global.
She sees three possible options: the expected €500 billion stimulus, a €1 trillion stimulus (which Sanchez calls “QE bazooka”), or a smaller stimulus of less than €500 billion (which she refers to as “QE lite”).
“There is a concern right now that the Germans are already suffering negative interest rates because of oil prices,” said Sanchez, a CNBC contributor. “The announcement of a massive QE would really, really be upsetting to them. However, if you announced QE lite, then the markets would be disappointed.”
Sanchez says that parity can nonetheless happen, and she said that may not be a bad thing.
“A weaker euro right now is in everyone’s best interest,” Sanchez said. “It helps to spur growth and that’s really what the region needs right now desperately.”
Meanwhile the technicals show that a decline to at least near parity has been in the works for more than a decade, according to a 15-year chart studied by one leading technical analyst.
“Since about 2003, we’ve been making a big distributional top,” said Craig Johnson, senior technical research strategist at Piper Jaffray. “We broke through key support at about $1.20. The next real support comes in around basically $1.05 to $1.10.”
“Parity is in the future in euro,” added Johnson, who is also president of the Market Technicians Association. “It’s in everybody’s best interest to see that currency cheaper so they can improve their exports. And it’s ultimately positive for the entire globe.”