EUR/USD: the resistance zone between 1.2177 and 1.2330 will determine the next major euro move, parity isn't heresy! (JP Morgan)

In its long-term EUR/USD analysis, JP Morgan favors a bearish scenario with a possible return to parity.

"The 2017 EUR/USD rally looks constructive and incomplete, as long as key support between 1.1510/1.1481 and 1.1403 is defended. Only a break and a weekly close under this last threshold would suggest that we are facing a much wider bearish consolidation around 1.1217 and 1.0754. To have a major move towards 1.0072 (76.4% of the 2000-2008 rally), however, it will take a decisive break below 1.0754. But as long as the EUR/USD defends the key support area between 1.1510/1.481 and 1.1403 is defended, the pair could still mark a new uptrend, which could probably test the area between 1.2177 and 1.2329. This would, however, only be supported and confirmed with a decisive break above 1.1965.

For a new long-term uptrend to be confirmed, it will require a break above 1.2329. Such a breakout would pave the way for a rise to 1.2744 and then 1.3191, which could be seen as intermediate targets only.

We clearly favor the bearish scenario based on the 10-year Treasury-Bond spread. The latter decisively broke a key resistance level at 1.77/1.78%, reinforcing the chances of an extension of the trend to 2.51% and 4.04%.

So overall, we believe there is only a 30% probability for a break of the EUR/USD above the key resistance zone between 1.2177 and 1.2329, which could be retested as long as key support between 1.1510/1.481 and 1.1400 is defended. Below 1.2177, however, the biggest risks seem to be a recovery of the pre-2015 downtrend towards - at the very least - 1.0070."