Is the EURUSD heading for parity?

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We have all been here before.

Despite the major currencies not being particularly volatile for many years, the differences between those on each side of the Atlantic is now becoming quite marked and has perhaps been the direction to watch for a considerable period of time.

Today, the EURUSD pair is trading at 1.13, which is the second-lowest point in over one year.

Just a month ago, at the beginning of this strong and continual period of downward movement for the 'cable' pair, analysts in senior positions in Wall Street and the City of London were beginning to consider the possibility that the EURUSD pair's value may make a return to that of 2014 when parity was almost achieved.

Given that many of the more industrially developed nations within the Eurozone have become subject to further restrictions at the hands of their respective governments, confidence has been affected as market participants take into account the potential effect slower production and less effective working practices in Austria, Germany and Holland could have on the wider Eurozone's stability.

In particular, Germany, which has a population of over 80 million and a traditional industry base which requires employees to attend their place of work as opposed to many large scale, high producing businesses in the Anglosphere which are often internet based or intrinsically linked to the big tech giants, therefore meaning working from pretty much anywhere would not stifle output.

Germany's largest employers are heavy manufacturing businesses such as Volkswagen, Bosch and Siemens, all of which require staff to travel to their factories. Restrictions being implemented by the national government would have a direct impact on this.

Whilst the US government is also talking about introducing restrictions, it has not brought in any Covid passport system yet, and has only done so for travel purposes whilst some of the European nations are doing so for access to everyday events and there is concern that this may extend to workplaces.

Looking at the EURUSD pair one month ago, it was trading at a healthy 1.22 which had been the case for quite a number of months, however as the year draws to a close we are looking at a clear downward line.

Just two weeks ago, the euro-Swiss franc pair fell below parity on November 1 for the first time in almost a year, echoing the same sentiment among traders.

At the beginning of this month, options traders were investing in options with longer expiry dates even before the euro dropped below 1.15, showing that a conservative approach is the current default.

Whether we will see parity or not is yet to be determined, however this is a really unusual downturn and has been on this trajectory for long enough to make it a real feature within the FX market.

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