The euro has enjoyed a stonking rally against the US dollar over the past six months, jumping from a low of 1.0339 on January 3 to as high as 1.1145 on June 29, representing a gain of 10.7%.
While an impressive move, the year-to-date range is still tiny compared to what has been seen since the inception of the euro back in 1999.
This chart from Deutsche Bank shows how the range so far this year compares to annual ranges seen over the past seven years.
Currently it’s very small, on track to record the narrowest annual range over that period with a little under six months to go.
According to George Saravelos, currency strategist at Deutsche Bank, the range seen so far this year is “too small”, suggesting that there’s still likely to be further upside in the euro to come despite low levels of market volatility.
“The current EUR/USD move is too small versus prevailing volatility levels,” he says. “There is an upward sloping relationship between FX volatility and ranges, with more volatile years associated with bigger FX moves.”
That relationship is shown in the chart below from Deutsche.
Saravelos says that even though volatility is low this year, the current range is even smaller than what would normally be the case, suggesting that current volatility levels have historically led to a 14 big figure range for EURUSD.
He thinks this year won’t be an anomaly to the rule, noting that a 14 big figure rally in the EUR/USD from the lows earlier this year would leave it sitting at 1.17 which just happens to be Deutsche’s end-of-year euro forecast.
“EUR/USD can go higher,” he says, adding that technicals don’t suggest the price action is “particularly stretched and ripe for mean-reversion”.