For currency traders, the unthinkable has happened. The Euro briefly traded below the price of the U.S. dollar for the first time in two decades and is now roughly equal. The last time this happened was on July 15, 2002, just seven months after the currency was fully introduced. 

"I always assumed that the Euro couldn't go below the dollar, just like oil before the pandemic couldn't go below zero," said Daniel Alhanti, a foreign exchange trader and president of The Foreign Exchange Trading Academy. "It's something that just didn't happen." 

Alhanti explained that trading patterns have long made it difficult to shake the two currencies' relatively stable exchange ratio. "The forex [foreign exchange] market is not the stock market. There needs to be level trading or else jobs are lost and things don't work out the right way." By "don't work out right," he means that it becomes a lot more difficult for countries to engage in balanced trade. 

The Euro and the U.S. dollar are the most heavily traded currencies in the world, and the EU is one of America's largest trading partners along with Canada, Mexico, and China, so stable exchange rates go a long way toward ensuring things run smoothly between the two economic zones.  

So what broke the mold? One theory is that Europe's economic prospects are bleaker than the U.S.

When it comes to inflation, for instance, the European Union is slightly worse off. According to the latest measures, inflation in the EU is 9.8 percent from last year, compared to 8.5 percent in America. The U.S. Federal Reserve also appears more gung-ho about raising interest rates, which many investors interpret as being more serious about snuffing out inflation. 

"The Federal Reserve has been out in front of the ECB [European Central Bank] in terms of raising rates, and that's really helped spur stronger dollar gains," John Canavan, an analyst for Oxford Economics, told Cheddar News.  "Stronger interest rates in the U.S. attract more money, and as a result, you see a stronger demand for the dollar."

This gets back to a basic tenet of currency trading: Whatever rate hikes mean for the rest of the economy, they often mean higher returns for investors. For context, the ECB raised rates for the first time in 11 years last month, while the Fed started raising rates in March. In addition, the U.S. dollar is the global reserve currency, which makes it an appealing safe haven investment in times of economic turmoil.  Again, it's all relative. While the U.S. is also facing a potential downturn, it's fairing much better than Europe in terms of employment and inflation.

Canavan added that there is a psychological dimension to the current Euro price as well.  "As the Euro weakened and got closer to one Euro for one dollar, there was a bit of a psychological impact that attracted traders," he said. "Traders were certainly buying dollars against the Euro just on the prospect that they were likely to see gains on that trade." As a result, he noted that there's at least room for a rebound as traders cash in on short Euro trades.

Finally, there is the elephant in the room: energy. Europe is highly dependent on energy from Russia, which has reduced the flow of natural gas into the Nord Stream 1 pipeline to 20 percent of capacity. This has pushed up the price of natural gas to around $270 per megawatt hour, though before last summer, it historically hovered below $30. European energy markets got another shock on Friday when Russian natural gas giant Gazprom announced plans to shut down for "routine maintenance" at the end of the month.

What does this have to do with currency prices? Popular Twitter account @0xHamz, which anonymously comments on macroeconomics, argues that Europe paying more for energy directly devalues its currency because it impacts the zone's current account deficit, which includes the country's balance of imports, exports, and investment. As more Euros flow out in exchange for less and less natural gas, in theory, the price will fall, unless an equal amount of investment by other countries flows back in.

Canavan said that could be a factor longer-term, but right now the more immediate impact of Europe's energy crisis is that it points to a bleaker economic outlook overall.  

"I think from a trading perspective, the bigger picture is what it means for the economic outlook," he said. "While higher energy prices may in the background fuel a little bit of Euro weakness, I think the bigger picture is more forward-looking."

In other words, a tight energy supply doesn't bode well for the European economy overall, while the U.S. is considerably more energy independent.