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FOREX: Parity Possibilities

FOREX
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A much calmer market early Friday relative to the sharp sell-off suffered by both EUR/USD and GBP/USD yesterday. Post-mortems of the move see most looking to technical breaks of support (we identified 1.2367 in GBP/USD and 1.0335 in EUR/USD), sprawling growth concerns for Europe that could be worsened by Trump's inauguration and political dissatisfaction across mainland Europe and the UK.

  • EUR/USD parity again becomes a focus going forward. Options markets now priced an implied probability of 49% for the pair to touch 1.00 in the coming three months (up from 28% a week ago), and a 21% probability (up from 13% a week ago) of the pair closing below parity at end-Q1.
  • Given the spot decline, no surprise to see downside interest ratcheting higher in hedging markets: DTCC data shows €2.7bln in puts traded with a strike of 1.00 or below since the turn of the year, with interest noted as low as 0.94 puts.
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A much calmer market early Friday relative to the sharp sell-off suffered by both EUR/USD and GBP/USD yesterday. Post-mortems of the move see most looking to technical breaks of support (we identified 1.2367 in GBP/USD and 1.0335 in EUR/USD), sprawling growth concerns for Europe that could be worsened by Trump's inauguration and political dissatisfaction across mainland Europe and the UK.

  • EUR/USD parity again becomes a focus going forward. Options markets now priced an implied probability of 49% for the pair to touch 1.00 in the coming three months (up from 28% a week ago), and a 21% probability (up from 13% a week ago) of the pair closing below parity at end-Q1.
  • Given the spot decline, no surprise to see downside interest ratcheting higher in hedging markets: DTCC data shows €2.7bln in puts traded with a strike of 1.00 or below since the turn of the year, with interest noted as low as 0.94 puts.