- EUR/USD sinks on Monday, hitting its lowest stage in almost twenty years and flirting with change parity
- Fears that Russia might indefinitely shut down fuel provides to the European Union seems to be one of many foremost bearish drivers for euro
- June U.S. CPI knowledge will steal the limelight this week. The report might act as a bullish catalyst for the U.S. greenback if inflation continues to shock to the upside
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The euro took fireplace from totally different instructions firstly of the week, struggling heavy losses towards the U.S. greenback amid risk-off sentiment and broad-based DXY energy. At noon, the EUR/USD was down 1.1% to 1.0069, however earlier within the day it fell as a lot as 1.3%, flirting with change price parity for the primary time since late 2002.
A number of catalysts weighed on the frequent foreign money on Monday, however the principle bearish driver was fears that President Putin’s authorities would lower off some key power exports to the European Union. PAO Gazprom quickly shut down Nord Stream 1, the largest single pipeline carrying Russian fuel to Germany, for annual upkeep. Though flows are anticipated to renew in 10 days, buyers speculate that the Kremlin might use the scenario as an excuse to limit fuel provides indefinitely in retaliation for sanctions imposed by the West following the invasion of Ukraine.
Ought to Nord Stream 1 stay out of service past the upkeep interval scheduled to finish on July 21, pure fuel costs are more likely to proceed to rise expontentially and probably surpass the March document, exacerbating the inflationary atmosphere in Europe. This situation may even create large fuel shortages within the area, prompting authorities to implement gasoline rationing and, within the worst case, order transient shutdowns of factories to scale back power consumption heading into the winter season, paving the way in which for what could possibly be a deep recession.
The specter of financial warfare might be on each dealer’s thoughts and depress the euro within the coming days till market individuals have a greater thought of what Russia plans to do subsequent. Developments on the opposite facet of the Atlantic, particularly in america, might additionally reinforce the EUR/USD’s bearish bias. June U.S. CPI knowledge, duefor launched on Wednesday, is anticipated to indicate annual inflation accelerating to a brand new cycleexcessive close to 9% on the again of hovering costs on the pump.
A red-hot CPI print will cement the case for one other 75 foundation factors rate of interest hike on the July FOMC assembly and probably September, as policymakers are starting to behave extra aggressively to upside inflation surprises. Financial coverage divergence between the Fed and the ECB, coupled with vital draw back dangers to development within the Eurozone, will be sure that the US greenback maintains management within the FX house, a scenario that will lock EUR/USD round parity within the close to time period.
EUR/USD TECHNICAL ANALYSIS
Following the EUR/USD’s current slide, costs have fallen to multi-decade lows close to 1.0000. To see what key technical ranges are coming into play, it’s crucial to show to the month-to-month chart. Though there aren’t any related zones of help within the neighborhood, parity might act as a flooring, but when sellers handle to breach that space to the draw back, merchants ought to brace for the potential for a transfer in the direction of 0.9625 by the third quarter. On the flip facet, if dip consumers return and spark a bullish reversal considering the oversold state of the market, preliminary resistance seems at 1.0350. On additional energy, the main focus shifts upwards to 1.0665.
EUR/USD TECHNICAL CHART
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—Written by Diego Colman, Market Strategist for DailyFX