Economy

EUR/USD renews 19-year low around 0.9900 amid escalating EU energy crisis ahead of ECB

  • EUR/USD begins the key week on the back foot, reverses Friday’s corrective pullback.
  • Russia shuts down Nord Stream 1 pipeline, Gazprom plans to supply gas via Ukraine.
  • G7 leaders agreed to price caps on Russian oil but the acceptance raised doubts.
  • ECB is likely to increase interest rate, recession fears could weigh on Euro.

EUR/USD takes offers to refresh the lowest levels since late 2002, poking the 0.9900 threshold during Monday’s initial Asian session as the worsening energy crisis highlights recession fears for the bloc ahead of the all-important European Central Bank (ECB). In doing so, the major currency pair not only reverses Friday’s corrective pullback but also challenges the crucial 0.9900 mark that pushed back the bears the last week.

On Friday, the Group of Seven (G7) nations agreed on capping the price of Russian oil in the international markets. However, it appeared to be a bad choice, even if its acceptance and implementation are still in limbo, as Moscow halted energy supplies to the European Union (EU) through Nord Stream 1 pipeline, citing a ‘leak’, during the weekend. It’s worth noting, however, that Politico ran a story mentioning that Russia’s Gazprom said on Saturday it would increase its shipments of gas to Europe via Ukraine, citing media reports.

In addition to the Russia-linked energy problems and a likely recession due to the same, a halt in the US-Iran nuclear talks also amplifies oil woes for the old continent. “Iran nuclear talks stall again after latest response from Tehran,” said Bloomberg.

Elsewhere, the mixed prints of the US employment data and firmer Eurozone factory-gate inflation data allowed the EUR/USD bears to take a breather the previous day. That said, US employment data marked mixed readings as the headline Nonfarm Payrolls (NFP) rose past 300K forecast to 315K, versus 526K prior, but the Unemployment Rate rose to 3.7% compared to 3.5% expected and prior. Further details reveal that the Average Hourly Earnings reprinted 5.2% growth for August, a bit lesser than 5.3% market consensus. Also, Factory Orders dropped to -1.0% for July compared to 0.2% forecasts and 1.8% previous readings. On the other hand, Eurozone Producer Price Index (PPI) rose to 37.9% YoY in July, versus 35.8% forecasts and 36.0% revised prior.

It should be noted that the Eurozone Producer Price Index (PPI) rose to 37.9% YoY in July, versus 35.8% forecasts and 36.0% revised prior.

On a different page, US President Joe Biden’s administration poured cold water on the face of expectations that the US may ease/remove the Trump-era tariffs on China. “The Biden administration will allow Trump-era tariffs on hundreds of billions of dollars of Chinese merchandise imports to continue while it reviews the need for the duties,” said Bloomberg. The news magnifies the risk-off mood and exerts additional downside pressure on the EUR/USD prices.

Looking forward, the European Union (EU) policymakers are planning to meet this Friday to battle the energy crisis, reportedly via tools to market intervention, which in turn may ease the pain a bit and may allow the EUR/USD to probe the bears. However, the US Labor Day Holiday could restrict the intraday market moves.

Above all, the ECB’s monetary policy meeting will be crucial as the latest inflation numbers have been high and the ECBSpeak also favors the rate hike by 0.50% this week. More importantly, doubts over the Fed’s next move and economic slowdown fears at home make the event interesting.

Also read: EUR/USD Weekly Forecast: Could the ECB come to the rescue of the EUR?

Technical analysis

A seven-week-old support line around 0.9880 acts as an extra downside filter to the south, other than the yearly low of 0.9900. Alternatively, recovery needs validation from the late July low near 1.0100.

 

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