Tom Fitzpatrick, Citigroup’s top FX technician combines technical and fundamental analysis to assess that EUR/USD is headed to parity or below.
In an interview with CNBC he explains exactly why.
Fitzpatrick compares the 9 years between 2005 to 2014 the 9 years between 1989-and 1998 and finds big similarities in technical behavior and also in the backdrop: He mentions the housing crisis in 89-91 the collapse of the ERM 92-94, the emerging market crisis, in 1998, Russian default, the convergence fade within the continent, the negative feed into Europe and the weakening of euro components in October 1998.
All this looks similar to the last 9 years.
Looking at the similarities between these periods, the analyst sees 1.40 as a top level and the EUR/USD following the downtrend in the next two years and eventually moving to or below parity.
Monetary conditions have been tightening, and the strength of the euro has been behind most of this. A move from 1.40 to parity is equivalent to a 500 points basis move in interest rates, which is impossible as rates have reached their lower bound.
Fitzpatrick concludes that a lower euro is not part of the problem but part of the solution.
Here is the interview: