Hedging against a weaker EUR/USD range: a wise move
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The euro’s recent weakness against the dollar suggests that EUR/USD may have shifted into a lower trading range, with the risk of a deeper, long-term decline. Given this structural shift, it would be prudent for investors and businesses to hedge against the possibility that parity—or even levels below it—could become the new medium-term equilibrium.
For nearly two years, EUR/USD has oscillated within a defined range of 1.0448 to 1.1276, largely consolidating the dramatic drop from 1.2349 in January 2021 to 0.9528 in September 2022, driven by the U.S. Federal Reserve’s tightening cycle. However, the recent breach of this range signals a potential resumption of the broader downtrend.
Interest rate differentials continue to weigh on the euro, accelerating its descent. The pair has fallen well below its prior consolidation phase, with this year’s base at 1.0125—significantly below the previous two-year low of 1.0448. At the very least, this suggests a shift into lower ranges, with upside potential likely capped near the 1.0500 level, a key technical threshold from the previous range.
More concerning, however, is the broader historical trend. Since the global financial crisis, EUR/USD has steadily declined from above 1.60 to parity. The eurozone debt crisis in the early 2010s accelerated this structural weakness, pushing the pair from the 1.20-1.40 range into the 1.00-1.20 zone. More recently, a crowded long-dollar trade caused a temporary bounce to 1.1276 in 2023, but that support has since faded, allowing the greenback to regain strength unencumbered.
Now, without excessive dollar positioning acting as a counterweight, the risk of a sustained drop below parity is growing. Should EUR/USD fall below 1.0000, it may struggle to recover above this level, potentially turning parity into the upper bound of a new trading range rather than a psychological floor.
For investors and corporate treasurers, the implications are clear: hedging against further euro weakness is a sensible strategy. The currency’s technical and macroeconomic backdrop suggests that its downward momentum could persist, making it increasingly difficult to justify long positions without substantial shifts in interest rate expectations or macroeconomic fundamentals.
For nearly two years, EUR/USD has oscillated within a defined range of 1.0448 to 1.1276, largely consolidating the dramatic drop from 1.2349 in January 2021 to 0.9528 in September 2022, driven by the U.S. Federal Reserve’s tightening cycle. However, the recent breach of this range signals a potential resumption of the broader downtrend.
Interest rate differentials continue to weigh on the euro, accelerating its descent. The pair has fallen well below its prior consolidation phase, with this year’s base at 1.0125—significantly below the previous two-year low of 1.0448. At the very least, this suggests a shift into lower ranges, with upside potential likely capped near the 1.0500 level, a key technical threshold from the previous range.
More concerning, however, is the broader historical trend. Since the global financial crisis, EUR/USD has steadily declined from above 1.60 to parity. The eurozone debt crisis in the early 2010s accelerated this structural weakness, pushing the pair from the 1.20-1.40 range into the 1.00-1.20 zone. More recently, a crowded long-dollar trade caused a temporary bounce to 1.1276 in 2023, but that support has since faded, allowing the greenback to regain strength unencumbered.
Now, without excessive dollar positioning acting as a counterweight, the risk of a sustained drop below parity is growing. Should EUR/USD fall below 1.0000, it may struggle to recover above this level, potentially turning parity into the upper bound of a new trading range rather than a psychological floor.
For investors and corporate treasurers, the implications are clear: hedging against further euro weakness is a sensible strategy. The currency’s technical and macroeconomic backdrop suggests that its downward momentum could persist, making it increasingly difficult to justify long positions without substantial shifts in interest rate expectations or macroeconomic fundamentals.