Bold call: EUR/USD headed to parity or below in next

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: