Image © Alfred Yaghobzadeh, European Commission Audiovisual Services

The Euro was briefly quoted at the one-for-one level against the Dollar on Tuesday but commentary from the FX sales desk at one very large bank suggests that a break below this market may not come easily due to a large volume of buy orders sitting around the parity level.

Bids and offers were accepted with business done briefly around the parity level for the first time since December 2002 on Tuesday but the Euro was quick to bounce and one noteworthy market middleman says this likely reflects profit-taking by speculative participants in the market.

“My sense is a large queue of buy orders at 1.00 stand in place in the market looking to reduce short exposure via either spot or option structures,” says Neil Jones, head of FX sales for financial institutions at Mizuho.

Jones works with high level hedge fund CEO and founders as well as heads of treasury departments from some of the world’s largest companies as part of his role overseeing Mizuho’s FX sales and services business.

He noted on Tuesday that there was “complete lack of follow through” interest on the downside when the Euro was bought and offered around parity on Tuesday in an outcome that suggests market conditions could be likely to test the convictions of Euro-Dollar bears in the days ahead.

Above: Euro to Dollar rate shown at 15-minute intervals alongside Dollar Index.

Others will not be easily discouraged, however.

“It has been nearly 20 years since EUR traded at parity with USD, and there are good reasons for the single currency to fall further in the months ahead,” says Jordan Rochester, a G10 FX strategist at Nomura.

“With gas importers driving price action and gas storage yet to reach target levels (80% before the winter) we believe a further move towards 0.95 is likely by end-August,” Rochester said in a note to clients on Tuesday.

Rochester and the Nomura team have been sellers of the Euro to Dollar rate since early April but have repeatedly lowered their target levels in pursuit of further declines by a single currency that has come under relentless pressure since the Russian invasion of Ukraine.

Rising energy costs mean more Euros sold on the market in exchange for the Dollars it takes to secure alternative energy supplies but with the Russian state now weaponising gas pipelines upon which many Eurozone countries are dependent, there is the possibility that this pressure could grow further.

Above: Euro to Dollar rate shown at monthly intervals alongside U.S. Dollar Index.

“If Nord Stream 1 doesn’t resume operations we think 0.90 is a growing possibility over the winter. A scenario where the euro area has to ration gas supplies to industry,” Rochester said. “If that’s not an economic crisis, what is?”

Tuesday’s brush with parity came in the wake of July’s Zentrum fur Europaische Wirtschaftsforschung (ZEW) survey, which showed economic sentiments of German and Eurozone investors deteriorating rapidly.

Germany’s ZEW index fell to -53.8 in July, a historic low beneath even that seen in March 2020 when coronavirus containment measures began to close down large parts of the world economy, while Europe’s ZEW index replicated that picture when falling to -51.10

“The ZEW surveys financial professionals. The German expectations gauge often co-moves quite closely with changes in the DAX (Chart 2), giving an indication of the type of views that are priced in to equity markets,” says Dr Salomon Fiedler, an economist at Berenberg.

“Overall, there is considerable uncertainty over how much gas Russia will deliver to Germany and the EU going forward and whether industry will face outright shortages,” he said following a review of Tuesday’s survey results.