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Power Prices Continue to Drill EUR Lower

  • The power crunch across Europe continues to send recession jitters throughout Eurozone assets, with EUR/USD respecting the deep-seated downtrend channel drawn off the February highs to print a new cycle low Wednesday. Continued upheaval in gas and oil markets put German energy futures at fresh record levels, prompting a further pullback in year-end ECB policy rate expectations, which now imply a deposit rate of less than 0.75% - a near 50bps reversal off the levels seen in mid-June. EUR/USD's new low at 1.0162 marks the weakest level since 2002 for the pair.
  • Political tumult continued to roil UK markets, with GBP/USD weaker as traders watch for what seems like the imminent resignation of the Prime Minister. That said, GBP fared generally well against the likes of the EUR, AUD and NZD - indicating that uncertainty surrounding UK governmental policy has been well priced in after a volatile few weeks for Boris Johnson. GBP/USD printed a new YTD low at 1.1876, but traded at the week's best levels against the EUR during the Wednesday session.
  • JPY was the main beneficiary of the risk-off backdrop, rising against all others in G10. AUD/JPY eyes support at last week's lows of Y91.43 ahead of the 100-dma of Y90.72.
  • Focus Thursday turns to the weekly US jobless claims releases as well as German industrial production and Canada's Ivey PMI. Central bank events include the release of the ECB's meeting accounts as well as speeches from ECB's Lane, Stournaras and Centeno as well as Fed's Waller and Bullard.

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