Is the Fibre heading for Parity?
What is the Fibre? And for that matter, why is it such a big deal that it may be heading for parity? Well, the Fibre is what we in the financial trading industry call the EUR/USD currency pair. Why?
Simply put, because the GBP/USD was always known as the cable, and the Euro being a newer currency only introduced in 1999 was named the Fibre. The idea behind it is basically to be a newer and improved version of the cable, that being the Optical Fibre.
However, the name and the reason behind it is not the important fact here, but instead the idea of parity and what it means for traders. Parity, in this particular case, refers to the Euro having an equal value to that of the US Dollar in the long term.
This is an important theory for traders, as it would be only the second time since the existence of the Fibre when parity has been reached. In addition to this, it also means a possible 1000 pips could be earnt by both day traders and position traders, as well as everyone in between.
Most people are aware that nothing is certain in the financial industry, other than recessions every now and then. However, we can analyse certain data and facts to attempt and predetermine how the market may move in the days, weeks and months to come.
So what do we know so far?
First, let’s look at the European markets prior to the Coronavirus outbreak in Europe and the current ongoing crisis. Let’s rewind to the last crisis back in 2008, known as the banking crisis.
We can see that back then most economies including the US and UK had entered and exited the period of low inflation, high unemployment, declined GDP and lack of loan circulation within 3 years. However, in the Eurozone we witnessed the recession continue in most countries to the current day.
Bearing in mind the US and the UK both had unemployment rates of 3.5% prior to today’s crisis, let’s have a look at some of the unemployment rates in the Eurozone:
- France – 8.1%
- Italy – 9.7%
- Spain – 13.6%
- Greece – 16.3%
On average across the EU, we had an unemployment rate of 6.2%, mainly thanks to Germany’s unemployment rate of 3.2%. Here we can really see the difference between employment in the Eurozone and its main competitors.
Bear in mind that the EU’s economy was already fragile and underachieving in terms of economic growth and employment. Now that a new crisis has hit before the EU has even gotten out of the previous crisis, economists are starting to look at the possibility of parity becoming the new reality.
What are the analysts saying about this?
The International Monetary Fund has indicated that the current crisis is likely to be worse than the banking crisis from over 10 years ago and most likely only going to be outscored by The Great Depression, from almost 100 years ago.
In addition to the IMF, Barclays also forecasts a “new cycle low” for EUR/USD and that the US is likely to turn to Europe and begin a new trade war, advising that the US is waiting for the opportunity moment.
The last piece of information to take into account: the big economies in the eurozone are starting to show signs of strain. The German growth stagnated in Quarter 4, while the French industrial production is falling alongside that of Germany’s (-2.8% vs -0.3% m/m). Even Italy’s Central Bank Governor, Visco, sees risks to the country’s economy and the EU’s overall debt level.
Hopefully, this blog has shed some light on the Fibre and the possible movement over the coming months. As I always say, nothing is certain in the markets but everything starts from an idea. Now that the idea has been shared by economists in general, it is down to traders to make their own analysis based on how the economy is going and the charts, in order to draw their own conclusions.