CITI: A pattern is popping up in the euro that suggests it could soar 20%

The euro is on track to post its biggest annual gain since 2003.
An "outside year" could occur for just the third time since floating exchange rates began in the 1970s.
The CitiFX Technicals team says the euro could hit 1.30 against the dollar in 2018 if that occurs.

The euro is poised to end its three-year losing streak in 2017, with a gain of 10.88% against the dollar so far, according to Markets Insider data. While that would account for the single currency's biggest annual gain since 2003, it could just be the beginning of a big move higher, according to the CitiFX Technicals team led by Tom Fitzpatrick.

The team is paying close attention to where the euro finishes this year. Specifically, they're watching 1.1616, as a close above there would make for an "outside year." That means the euro would end 2017 above the previous year's high after trading below the previous year's low. Take a look at their chart below:

An outside year would be rare, according to Fitzpatrick's team, as it has only occurred three times since floating exchange rates began in the 1970s.

"All three have seen moves in the same direction as the reversal in the following year," Citi wrote. "On average the move the following year has been over 20%."

So where will the euro go from here?

"The smallest move in the year following such a reversal was seen after the 2014 bearish outside year that yielded a 13.5% fall in 2015," Fitzpatrick's team concluded. "That move also started with a bearish outside month first (in May). If replicated that would suggest a real danger of a move above 1.30 in 2018."

And Citi isn't alone in its call for the euro hitting 1.30 against the US dollar. BNP Paribas FX Strategist Sam Lynton-Brown also has that price target for the single currency, except he expects that level to be reached by the end of 2019.

"A reduction of expectations of US rate hikes and an earlier than anticipated move by other G10 central banks towards tighter monetary policy have caused us to bring forward our expectation of USD weakness," he wrote in a July note.

He points to the European Central Bank moving away from its very accommodative policy, which in turn causes investors to "begin to unwind or hedge their large holdings of foreign debt securities," providing support to the euro.