NEW YORK (MarketWatch) — When the euro smashed through $ 1.10 this week, it flattened the last big, round technical barrier with any kind of precedent in the last 12 years.
Now, analysts are trying to divine what the next stop will be in the shared currency’s inexorable march toward dollar parity.
Matthew Weller, senior technical analyst at Forex.com, said the market could see some short-term consolidation around the September 2003 low of $ 1.0765.
Weller said he doesn’t expect parity until “some time in 2016,” and that the euro could experience the kind of halting, sideways trade seen for most of February as we draw closer to a Federal Reserve rate hike.
The next big risk event for the euro is the Federal Reserve’s two-day policy meeting on March 17. Weller said that the removal of language that the Fed can be “patient” before deciding to raise rates from its monetary policy statement would signal to the market that the central bank intends to soon raise rates for the first time since 2006 in June.
Jens Nordvig, global head of currency strategy at Nomura, said his official estimate for the euro’s year-end value is $ 1.05 — but there is a chance the market could see parity in the next three to six months, he said, if eurozone fixed-income outflows continue to intensify.
As eurozone bond yields have fallen to record lows, outflows from eurozone credit markets have hit an all-time high, Nordvig said.
In the medium-term, Nordvig expects that there could be a brief period of consolidation around the $ 1.05 level after the Fed raises rates.
Boris Schlossberg, managing director of FX strategy for BK Asset Management, said the conflict between Greek and European leaders over how to resolve Greece’s debt crisis is a major threat to the euro’s valuation.
“The euro is suffering from the market’s realization that there is no political will whatsoever to resolve the Greek issue in a pragmatic way,” Schlossberg said, citing several eurozone officials who have said they expect Greece to repay every cent of its debt. “That is just not realistic.”
Schlossberg said he expects the euro to find some short-term support around $ 1.06.
The euro won’t see much of an impact from the beginning of the eurozone’s expanded stimulus program on Monday, analysts said, as the market has largely priced it in already.
With so many variables at play, the range of when the euro could hit parity — and how far it could fall — is difficult to gauge.
“Specifically how far we can go down — that’s a very difficult question. But it’s very unlikely we’ve seen the end of it [the euro’s decline],” Nordvig said.