Rising Covid Uncertainty and Energy Crisis To Weigh on Growth and The Euro

• In the past two months, the titanic rise in energy prices has plunged Europe (and UK) into a energy crisis, which adds on to the current covid uncertainty.
• Netherlands TTF Nat Gas 1M forwards, which is considered as the benchmark gas price for Europe, reached a new record high of 178 Euro (/ MWh) on Tuesday.
• The shortage of nat gas, combined with the declining wind power output and the cold winter have been major drivers of the commodity since the beginning of September.
• The chart below shows that nat gas prices are currently standing 6 times higher than their historical 17-year average (before recent surge).
• Hence, growth expectations have been plunging in Europe recently, which could continue to weigh on the single currency in the medium term.
• EURUSD found support at 1.12 last month but remains vulnerable ahead of the winter as the economic uncertainty keeps rising; next key support to watch on the downside stands at 1.1040, which corresponds to the 76.4% Fibo retracement of the 1.0640 – 1.2350 range.

Source: Bloomberg/MNI