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Gas Uncertainties Prompt Renewed Euro Weakness

FOREX
  • EU energy ministers agreed Tuesday on a voluntary reduction in gas consumption of 15% ahead of the 2022-23 winter, as well as a mechanism to trigger a Union Alert if there is a risk to supply, in which case reductions would become mandatory.
  • The decision comes amid ongoing concerns over Russia’s potential gas supply cuts to EU countries, adding to the growing recessionary fears throughout the continent.
  • Euro weakness was broad based, falling roughly one percent against the greenback as well as the JPY, GBP and CHF. EURUSD downward momentum picked up speed below the Monday lows at 1.0179 and the single currency moved steadily lower throughout Tuesday.
  • Approaching the APAC crossover and tomorrow’s FOMC decision, EURUSD is hovering just North of the 1.01 mark at a one-week low. The breach of initial support at 1.0120 will be monitored with the focus turning to the next support points at 1.0064/0.9952 Low Jul 18 / 14 and the bear trigger.
  • EURCHF’s break below 0.9807 and the 0.98 handle sparked a wave of selling as the pair continues to make fresh cycle lows and print at the lowest levels since the removal of the floor in January 2015.
  • Mostly a product of the weaker Euro, the USD index has risen 0.7% and combined with the weaker price action across major equity indices, the likes of AUD, NZD and CAD have fallen between 0.4-0.6%.
  • Focus on July FOMC: With firm consensus for a 75bp Fed hike, focus at the July meeting will be on Powell and the Statement. The key immediate question is the FOMC’s thinking on the magnitude of the next hike.
  • A reduction in the size of hikes is likely starting in September, especially given weakening economic data and the ongoing moderation in inflation expectations. However, for now the FOMC is likely to be non-committal, apart from saying it anticipates ongoing hikes are appropriate.
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