Euro Nearing Parity

• The euro started the year on a weak note, trading at $1.0294 on Friday, with hedge funds predicting it could breach parity with the dollar in the coming months.

Massive Options Trading Surge

• About €2.5 billion in euro options targeting parity or lower changed hands in a single day — four times last month’s daily average.

Bearish Sentiment Building

• Hedge funds have held bearish positions on the euro since September, citing Europe’s slowing economic growth and the potential for new US tariffs.

Predictions from Analysts

• Rabobank, Wells Fargo, and Investec forecast the euro could test parity in Q2 2025, similar to its 2022 levels during Europe’s energy crisis.

Contrarian Bets Exist

• Some traders are betting on a near-term euro rally, with gamma risk reversals indicating interest in short-dated momentum reversals.

What’s next?

• The euro’s trajectory reflects the economic divergence between the US and the Eurozone, with parity against the dollar appearing increasingly likely.

However, oversold indicators suggest the possibility of a short-term rebound. Market focus on US tariffs and Europe’s economic growth outlook will likely play a key role in

shaping the euro’s performance in the coming months, making this a critical period for FX markets.