The EUR/USD parity has briefly hit 1.23 on Wednesday, for the first time since December 2014. The move is particularly striking as there has been a disconnection since September between the EUR/USD parity and the long-term rate differential between the US and Germany (the euro has appreciated vs the USD despite the re-widening of the rate spread). One possible explanation is that markets increased massively their long position on the euro from November. Actually, investors have built the largest long positions on the euro ever. The “long euro” position has become a “crowded trade”. As a consequence, we might expect a correction of the euro in the short-run despite our assumption that the euro will finish 2018 stronger than the current levels.
