According to Zhitong Finance APP, as the USA prepares for the return of the former president, the Forex market is getting ready for a rare event: the euro to dollar parity.

According to strategists from Bank of New York Mellon and other Banks, this may happen after Trump takes office later this month.

Since late September last year, the euro has fallen more than 7% against the dollar, hitting a low of 1.0226 last week, the lowest level in over two years. The Options market indicates that there is about a 40% chance that this currency pair will reach parity this quarter, while trading volume for contracts targeting that level surged last week.

The market is watching the implications of Trump's inauguration on January 20, searching for potential catalysts. Bank of New York Mellon and Mizuho Bank expect that Europe will become a potential victim of a trade war, and differing growth expectations between Europe and the USA may bring about a rare strong dollar in 20 years. Both major banks believe that the euro to dollar parity could be reached as soon as this month.

Geoffrey Yu, a senior strategist at Bank of New York Mellon, stated, "We are not far from this target, so it could happen soon." He expects bearish sentiment towards the euro to peak around the Fed and ECB meetings at the end of January. "Parity is inevitable."

Since the euro's inception in 1999, instances where the euro and the dollar are at parity have been rare, and such occurrences typically indicate that the economic environment for the euro is relatively poor compared to the USA. The last time this happened was in 2022, when the Russia-Ukraine conflict triggered an energy crisis in Europe and raised concerns about an economic recession.

Currently, concerns about energy supply and security remain, with last week's interruption of natural gas flowing from Russia to Europe via Ukraine serving as a reminder.

Europe's export-oriented economy is struggling to cope with the threat of US trade tariffs, which reflects in expectations that the European Central Bank will have to significantly lower interest rates, contrasting with the Federal Reserve's slower approach. Political instability in the eurozone's largest economy has added to the pressure.

Antony Foster, head of G-10 Forex Spot Trading at Nomura Securities, stated: "Market sentiment couldn't be worse." He believes that if Trump launches the tariff policy shortly after taking office, January 20 will be a potential catalyst for further weakening of the euro.

Despite the rebound of the Euro this week while the US Dollar weakened against other currencies, and reports indicating that Options Trading traders abandoned parity bets, large Banks such as JPMorgan still suggest that this level may be reached this quarter. Wells Fargo & Co believes it is more likely to reach this threshold in the second quarter.

Jane Foley, head of Forex Strategy at Rabobank, stated that this largely depends on whether the market further confirms a benign trend in inflation to support a more aggressive interest rate cut by the European Central Bank. Latest inflation data shows that the eurozone's harmonized CPI annual rate for December met expectations, rising from 2.2% in November to 2.4%, while the core harmonized CPI annual rate exceeded expectations at 2.8%.

The market generally expects that the European Central Bank will lower the deposit rate to 2.75% at the next meeting, while the Federal Reserve will keep interest rates within a range of 4.25% to 4.5%, highlighting the growing divergence in their monetary policies. Data from Bank of New York Mellon on over 50 trillion dollars in Asset Management shows that investors' holdings of the euro have reached their lowest level in 20 years.

Foster from Nomura Securities asked, "How could anyone be bullish on the Euro?"