Weekly euro fundamental forecast
Why is EURUSD falling? The answer, at first glance, is obvious. The US economy looks stronger than the euro-area one. The Fed is not set back by the energy crisis, so it can afford a more aggressive monetary tightening than the ECB. Lower risk appetite supports the demand for the US dollar as a safe-haven asset. Two of the three drivers of the EURUSD downtrend are based on gas prices. Gas prices in Europe have grown seven times over the past year. Since July, the prices have doubled. What if the energy prices start falling? Will this circumstance turn the euro trend up?
Information that German gas storage facilities are filling up faster than expected has sent futures prices down at the fastest rate since March. Thanks to Germany, which could reach its 85% target for gas inventories for October as early as September, the EU inventory level is estimated at 79.4%. 80% required as of November 1st. The target is likely to be reached. How can this be against the backdrop of reduced supplies from Russia? China is saving the situation. Due to low domestic demand, it resells LNG to Europe.
Dynamics of gas prices in Europe
According to the research company Kpler, imports of liquefied natural gas to Europe jumped by 60% in January-June. Of course, the situation may change. Due to the growth of economic activity in China, gas sales will fall. However, with the current level of reserves, the European Union can satisfy its gas needs in winter by 30%. If energy supplies are not shut down completely, a recession can be avoided. At the same time, the fall in futures could suggest that inflation has reached its peak and should stop rising, which will give more freedom to the ECB.
The European central bank already surprised investors when it raised interest rates by 50 basis points in July. So, Christine Lagarde and her fellow central bankers could support euro buyers with a wider move in September. The EURUSD is not supported by faster growth in expectations for the European Central Bank rate hikes than for the federal funds rate due to concerns about a recession in the euro area. But what if there is no recession?
Dynamics of expectations for rate hikes by ECB and Fed
The US dollar is supported by the ongoing collapse of US stock indices. After Jerome Powell’s hawkish speech in Jackson Hole, investors believed that the S&P 500 uptrend from mid-June to mid-August was nothing more than a bear market rally. But there are plenty of buyers, and the stocks are likely to stabilize, which will deprive the greenback of an important benefit.
Weekly EURUSD trading plan
I suppose the further decline of gas prices in Europe could trigger a EURUSD correction up. If the price goes above 1.0225, one could enter short-term buy trades.
Price chart of EURUSD in real time mode
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