Historical moves of EUR/USD below parity and key levels to watch

The euro was conceived on 1 January 1999 as an electronic currency with a starting value at around 1.17, and later, physical euro cash notes came out of the printing machines on 1 January 2002.

The purpose of the euro was to promote economic stability and integration of capital, goods, services, and human resources flows among European nations by having a universal monetary policy and medium of exchange for transactions.

In the past 24 years, there have been significant boom-and-bust cyclical movements of the euro against the US dollar. Let’s highlight each of them briefly where the EUR/USD breached below the key psychological parity level before examining the possibility of an EUR/USD major bearish move below 1.00 amid the current US White House’s erratic implementation of its global trade tariffs policy, and Germany’s new ambitious expansionary fiscal stimulus measures.

The birth of EUR/USD in January 1999 coincided with the upcoming 21st century. At that juncture, we witnessed the technological breakthrough of the internet, which gave rise to a rapid transition of brick-and-mortar businesses to set up relevant websites for greater outreach of their respective businesses beyond their localized home countries.

The US managed to dominate the dot.com arena, where US stocks in the Technology, Media, and Telecom (TMT) sector skyrocketed to astronomical levels. The Nasdaq 100, where the TMT sector had a significantly higher market-cap weightage, rallied by around 125% from January 1999 to its March 2000 peak. In contrast, the Euro Stoxx 50, a benchmark European stock index, gained by a smaller magnitude of around 55% over the same period.

Hence, a stronger US economy coupled with US leadership during the dot.com boom has attracted relatively higher global portfolio capital inflow into US dollar-denominated risk assets.

The EUR/USD plummeted by 27% from January 1999 to print a low of 0.8230 in October 2000.

The malaise of the European sovereign debt market was caused by the structural weakness of the Eurozone, where it lacked a unified fiscal policy, and countries within the Eurozone could borrow independently, with the risk of some countries running unsustainable budget deficits while sharing a common currency, the euro.

Greece triggered the crisis and the contagion effect in late 2011 after it revealed that its budget deficit was far higher than previously reported, which sparked a panic in the European financial markets.

Greece’s longer-term sovereign bond yields rose significantly, triggering a similar rise in other Eurozone countries' bond yields; Spain, Portugal, and Italy, which ran on significant budget deficits.

Many European banks had high exposure to these sovereign debts, meaning that as government bonds lost value in banks’ balance sheets, it increased the risk of insolvencies that, in turn, increased systemic risk in the Eurozone. Overall, European risk assets and the euro sold off significantly.

The EUR/USD torpedoed by 27% from the start of January 2010, with an opening level of 1.4026 to a low of 1.0460 in March 2015.

The euro was given a “lifeline” by the European Central Bank (ECB) from breaching parity against the US dollar. Mario Draghi, then-president of the ECB, delivered the famous “whatever it takes” speech in July 2012 to preserve the euro.¹

Subsequently, the ECB unveiled the Outright Monetary Transactions (OMT) program, a tool designed to purchase government bonds of struggling Eurozone countries, namely Greece, Spain, Portugal, and Italy, at that juncture to alleviate long-term borrowing costs.

Hence, the ECB’s response, including bailouts and the OMT bond-buying program, was seen as a strong commitment to the euro. It helped calm the markets and prevented a fall to parity.

The post-COVID pandemic environment has ushered in a global supply chain shock, where severe bottlenecks in key shipping ports have triggered a supply-side inflationary spiral globally.

These inflationary pressures were further enhanced by the geopolitical tensions that arose from a full-scale Russian invasion of Ukraine in February 2022, which led to food and energy prices skyrocketing.

The US Federal Reserve responded with a series of aggressive interest rate hikes that kicked off in March 2022. The Fed funds rate then increased swiftly from 0.25% to 4.75% by March 2023, a 450 basis points increase in one year, the largest rate hike since 2000.

The Fed’s aggressive restrictive monetary policy path had widened the yield premium of US Treasuries over European sovereign bonds, which made it less attractive to capital flows.

Coupled with the Russia-Ukraine conflict, which saw a disruption of European energy supplies from Russia, its major natural gas supplier before 2022, that led to a mild stagflation environment in the Eurozone that triggered a negative double whammy on the euro.

The EUR/USD staged a rapid decline of 22% at the start of 2021, broke below parity in September 2022 for the first time in around 22 years, and printed a low of 0.9535 in the same month before it staged a recovery in the next two years towards 1.1130 in September 2024.

After the conclusion of the US presidential election on 5 November 2024, which led to the return of Donald Trump to the US White House, financial markets had embraced the “America First” policy narrative, a pet campaign by Trump during his campaign trail.

The US dollar rode on the coattails of Trump’s “America First” initiative that saw significant up moves against other major currencies, where the EUR/USD saw a drop of 6% from November 2024 to print a low of 1.0177 in January 2025.

The market talks of the EUR/USD retesting the psychological parity level, and even a breakdown below it had gained traction at the start of 2025.

Hence, the ECB may be forced to engage in a more aggressive accommodative monetary policy stance to offset the negative economic impact of US President Trump’s 2.0 more aggressive trade tariffs policy that has a wider scope of coverage where European imports are on the radar.

However, the prospects of the EUR/USD have started to get better after the conclusion of Germany’s federal election on 23 February. Germany’s newly elected Chancellor Friedrich Merz from the center-right (CDU/CSU) conservative party crafted a more expansionary fiscal policy, a radical shift away from his predecessors who championed fiscal austerity policies.

Merz has proposed the biggest government spending spree since reunification in 1990. Defense and infrastructure outlays could amount to approximately 1 trillion euros, around 20% of GDP. Also, the new coalition government is set to relax the Berlin “debt brake” fiscal rule in the constitution to exempt defense spending above 1% of the GDP output.

Geopolitics also plays a significant role in the latest crafting of an aggressive defense expenditure plan for Germany. US President Trump has signaled that the US is not willing to provide a solid security guarantee to Ukraine in any US-brokered peace deal to end the three-year Russia-Ukraine war.

Since the end of February, the EUR/USD has rallied by almost 6% to print a recent high of 1.0955 on 18 March, in line with the three-month rolling outperformance of Germany’s DAX over the major US benchmark stock indices (see Fig 1).

Rising stagflation fears in the US are driven by the White House's aggressive trade tariffs policy and its erratic implementation, which may lead to capital outflows from US risk assets. This, in turn, could dampen the earlier bullish prospects for the US dollar that were anticipated under President Trump's flagship 'America First' policy.

Watch the 1.0495 key long-term pivotal support on the EUR/USD, a clearance above 1.0895 key intermediate resistance may see the major resistance coming in at 1.1220 (also close to the upper boundary of the long-term secular descending channel from January 2008 high).

On the other hand, a breakdown with a weekly close below 1.0495 invalidates the bullish scenario to rekindle the “parity retest” narrative to expose the next major support at 1.0090 in the first step.

Footnotes

1 “Special Report: Inside Mario Draghi’s euro rescue plan” by Reuters (26 September 2012)