ING Research sees EUR/USD to reach 0.9500 (‘worst case’) on a break of 1.00

With EUR/USD closing in on parity we are getting questions from customers as to what a break of parity could look like and how far EUR/USD could fall? 1.00 is probably the biggest psychological level around in FX and fireworks look likely. The options market would size up a worst-case outcome as something like 0.95 over the next month,” ING notes.

“One example here could be a speculator wanting to position for a lower EUR/USD , but wanting to cheapen the structure by having a ‘Knock-out’ at 1.00. Should 1.00 trade, the speculator’s position evaporates and questions whether he/she wants to re-apply bearish EUR/USD strategies down at these levels. Where 1.00 to break we would expect volatility to pick up sharply and most likely EUR/USD to gap lower.

How low could EUR/USD go over the next four weeks? Here we look at the FX option markets for expected ranges. Based on the current pricing of EUR/USD implied volatility , a one standard deviation move could see EUR/USD as low as 0.9873, while perhaps a worst case, two standard deviation outcome could see EUR/USD as low as 0.9545,” ING adds.

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