Euro & Dollar Parity, Reality Versus Perception (FXE, EUO)

The formal launch exchange rate was $1.18 per euro in 1999.  At the launch of the Euro, it lost value immediately and then it was not until 2003 that it was back above the $1.18 mark.  When I was in Europe in 2002, the Euro was running well under $1.00.  In fact, it was under $0.90 at the time.  At the 2008 peak, it was just under $1.60.

CurrencyShares Euro Trust (NYSE: FXE) is designed to track the price of the euro net of Trust expenses, with a ratio of 100:1 based upon the share price.  ProShares UltraShort Euro (NYSE: EUO) has a stated mandate of trading at twice the inverse performance of the EUR/USD daily price change, although there may be tracking error and due to leverage there may be resets that seem different from the market. The FXE is down 0.4% at $123.03 and the EUO is up 0.65% at $24.70.

The current measure of the Euro is of course going to create a changed environment for those companies which have much business depending upon Europe.  But unless the implied $1.18 per Euro parity gets taken out and then the classical $1.00 per euro comes into play, then the Europeans are getting far too much credit for their value-added to the global economy.

Can the EuroZone woes continue to plague the markets?  Absolutely.  Should they?  At some point, they have to be discounted.  Webster’s dictionary defines parity as:
1) the quality or state of being equal or equivalent
2) a- equivalence of a commodity price expressed in one currency to its price expressed in another; b- equality of purchasing power established by law between different kinds of money at a given ratio

Maybe this is really just a parody of parity.

JON C. OGG