If 1.15/1.25 is traditionally fair value for the euro…
Many a market practitioner views the area between 1.15 and 1.25 as a neutral area for EUR/USD; fair value, if you will. The euro was born within that range, its 200-month moving average comes in at 1.1878 (coincidentally or not, the low for this move) and neither side is particularly advantaged from an export perspective in that area.
In this environment, do the old perceptions still hold water? I’d argue that the massive expansion in both US monetary and fiscal activism in the wake of the global financial crisis moves the goalpost to some degree. Where should fair value be? (To be fair to the US, my assumption for the euro is that it has been dangerously flawed since inception given its lack of a cohesive economic government…)
Tough to put a precise range on it, but suffice it to say fair value is a bit firmer than the traditional 1.15/1.25 neighborhood I’d hazard a guess.
The one thing we know for sure about currencies is that when they are trending they tend to overshoot any esoteric measurement by miles.
If we concede that fair value is closer to 1.40, than perhaps we have already overshot to the downside in EUR/USD and we are presently undervalued.
This is purely food for thought, not a trading recommendation of any type. Markets often move well beyond levels seen as justifiable by the fundamentals and stay there for months, and at times for years…