Aside from the psychological impact, 1.20 doesn't mean much
Normally, a 40-pip gain in the euro wouldn't be a big story but when that gain takes EUR/USD from 1.1980 to 1.2020, it's major news.
The 1.20 level is one that we (and everyone else) has been talking about for months. The story was that Europe was recovering but a big reason EUR/USD has risen so quickly is because the United States has faltered at the same time.
But enough with the recap, 1.20 is here and that's a reason for the bulls to celebrate. Should they take profit? I'm not so sure.
Aside from the psychology of it, the 1.20 level is insignificant technically. A more important zone is around 1.2228, which was also close to the 2014 low of 1.2247. Given the momentum in the euro and multiple worrisome signals for the dollar (like bonds) we could get there in a hurry.
A main risk from here is that the ECB doesn't like what's happening in the currency. According to economists at BNP Paribas, a 10% rise in the euro normally corresponds with a fall of nearly 0.5 percentage points in inflation over the subsequent 12 months. It's risen 15% versus the dollar and 5% on a trade-weighted basis.
