According to Goldman Sachs Group, the common European currency is expected to reach parity with the US Dollar by late 2017.
American economic reports came out better than expected yesterday, thereby confirming an economic recovery in the USA. At the same time, EURUSD is consolidating in advance of the ECB's decision, which will be made after the meeting on Thursday, September 4th.
Euro May Reach Parity With Dollar By Late 2017
Since May 2014, the common European currency has already lost 5,75% of its value against the US Dollar. Yesterday, on September 2nd, the currency pair set another major low at 1.3109. Meanwhile, some analysts working for Goldman Sachs assume that this is just the beginning of a long-term decline. When the Fed starts raising interest rates, investors will start fleeing Euro-denominated assets for USD-denominated counterparts, thereby pushing the common currency further down against the US Dollar.
The analysts assume that in 6 and 12 months, EURUSD will drop down to 1.2500 and 1.2000 respectively. As for late 2015, the currency pair may go down to 1.1500. The price may also hit 1.0500 12 months later. Eventually, they predict parity by late 2017 for the first time since 2002, when the Euro was first introduced as a physical currency.
As for the Fed, it is probably going to start raising interest rates in maid 2015, thereby boosting bond yields and widening the existing spread between 10-year German and Spanish bond yields. At this point, they are 0,89% and 2,22% respectively.
Apparently, higher US bond yields make the US Dollar more attractive for investors since it increases the value of USD-denominated assets.
EURUSD Prospects
According to the trading members of Masterforex-V Academy, the currency pair named EURUSD is currently consolidating close to a psychological level of 1.3100 The thing is that market participants are trying to go risk-averse in advance of the forthcoming ECB meeting which is set to close on Thursday, September 4th, with a certain decision. This decision is exactly what many of those who trade EURUSD are currently looking forward to. This one is definitely going to drive the market.
Meanwhile, the price is consolidating within the scope of the 1,3108 – 1,3136 range. Meanwhile, the bearish swing started on August 27th is still incomplete. So, the price will show us the likely direction of the forthcoming move when it breaks out of the range. If to take in to account the current weakness of the economic indicators coming from Europe coupled with stronger figures from the USA and concerns over the Fed's QE tapering along with the long-term forecast for EURUSD made by Goldman Sachs, the bearish scenario looks more likely at this point. If the bottom is overcome, we may well se a further decline down to 1,3067 and below. However, if somehow the price consolidates above the top of the range while backed by stronger figures, we may see a rally up to 1,3136 and even 1,3158.
Meanwhile, the Binary Options Department of Masterforex-V Academy recommends going short EURUSD by purchasing put options after bullish reactions. The estimated average lifetime of such a binary option is around 1,5 hours.
