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The End of an Era for the Euro

by | Tips & Strategies

If you started trading in the last two decades, you’ve only known a world in which the euro is worth more than the US dollar. You’d have to go all the way back to 2002 to find data points representing the EUR/USD conversion rate that start with a zero to the left of the decimal point.

6E / Euro Currency Futures Historical Prices

Source: CME Group (https://cmegroup.com)

Today, the euro is trading as close to parity with the dollar as it has for the last several years – under $1.05.* Will the euro finally crash below $1 for the first time in 20 years? Or, is yet another bounce coming as it did in the late 2010s?

Euro-US Dollar Conversion Rate Historical Prices

Though it may look like the sky is falling in the Eurozone, their currency has been here before. Actually, the euro broke $1.05 back in 2017 only to close the year above $1.20.

6E / Euro Currency Futures Historical Prices

Source: CME Group (https://cmegroup.com)

This historical data, of course, does not guarantee a path higher for EUR/USD, but it at least sets a precedent for the eurozone currency to bounce back just when sub-$1 prices may seem inevitable.

Probability of A $1 EUR/USD Conversion Rate

All of that said, some are placing bets on euros falling below parity against dollars as soon as August. Prices on the 1.00 Euro FX Futures (6E) options project a 10% chance of the euro reaching $1 by August 5, 2022, and the same strike options in longer-term expirations only see rising probabilities of such an event.

Probability of a 1:1 EUR/USD Conversion Rate

Date Probability
August 5th 10%
September 9th 15%
December 9th 20%

Values taken on 6/30/22 Source: CME Group (https://cmegroup.com)

If you think even a 10-20% chance of this event that hasn’t occurred since 2002 is too high, then you can sell the 1.00 puts in 6E; if you think euro-dollar parity is coming by the end of 2022, then you can buy them. Alternatively, a trip down to 1.00 in the relatively large 6E futures would roughly coincide with a journey north of 168 in Small US Dollar Futures (SFX). Selling or buying SFX calls in that range could yield a smaller version of this strategy.

The financial media loves to call for the end of an era whenever it’s close to being relevant, but, more often than not, the same old song continues. Futures and options let you call BS or FACTS when the news story comes up.

 

*All values in this article taken 6/30/22 Source: CME Group (https://cmegroup.com)

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© 2022 Small Exchange, Inc. All rights reserved. Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information in this advertisement is current as of the date noted, is for informational purposes only, not intended as a recommendation, and does not contend to address the financial objectives, situation, or specific needs of any individual investor.  The information presented here is for illustrative purposes only and is not intended to serve as investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Trading in derivatives and other financial instruments involves risk.

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The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

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