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Euro Vulnerable as Commodity Crisis Sees US Dollar Buying. Will EUR/USD Press Lower?

Euro Vulnerable as Commodity Crisis Sees US Dollar Buying. Will EUR/USD Press Lower?

Daniel McCarthy, Strategist

Euro, EUR/USD, US Dollar, Crude Oil, AUD, NZD,Commodities, Putin - Talking Points

  • The Euro is losing ground against USD as Ukraine war unfolds
  • APAC equities follow Wall Street’s lead down, while commodities roared higher
  • Uncertainty is the only certainty for now.Will EUR/USD break down?

Euro went to its lowest level since June 2020 last night as the Ukraine war continues to unfold with heightened anxiety over EU energy supply.

The reliance of the EU on Russian energy supplies leaves the continent exposed to supply constraints. Combined with US Dollar haven buying, EUR/USD remains under pressure.

It’s being reported that Russian oil and gas contracts that are already in place are still being delivered, but that new contracts are not being written by energy traders.

There are concerns about future sanctions being levied against Russia, including the banning of being able to receive oil and gas from Russia, as well as being able to pay suppliers.

This has seen energy commodities that are sourced from elsewhere being hoovered by the market. Brent and WTI crude oil are above US$110 bbl and US$ 108.50 bbl respectively at the time of going to print.

Elsewhere, gas, gasoline, heating oil and liquefied natural gas (LNG) that are not sourced from Russia are soaring higher.

US President Joe Biden gave his State of the Union address after the North American close.

He backed up the rhetoric on supporting the Ukrainian people and called the Russian President Vladimir Putin a dictator, not for the first time.

He also talked about getting back to normal after the pandemic and expanded on the economy.

He mentioned efforts to rein in inflation and improving the manufacturing sector. Balancing the budget also got a mention but the market didn’t react too much from his address.

Gains were seen across all of the metals’ commodity complex. Gold is trading near US$ 1,935 an ounce.

The Australian Dollar continues to press toward recent highs after annual GDP came in at 4.1% for 2021, which was close to expectations.

The Kiwi also found some support as a result, while other G-10 currencies were generally contained in the APAC session after the recent volatility.

US Treasury yields have ticked up slightly in the Asia after sliding in the US. The 2-year note is yielding around 1.35%.

Wall Street was down around 1.5% in their cash session and futures are looking for a steady start to their day.

APAC equities reflected these loses with the exception of Australia’s ASX 200, that saw a modest gain, thanks to commodities.

Looking ahead, there’s some mortgages and jobs number out of the US, but the focus will remain on developments out of the Ukraine.

EUR/USD Technical Analysis

EUR/USD volatility has increased as illustrated by the widening of the 21-day simple moving average (SMA) basedBollinger Bands.

The price is currently below the lower band, but a close back inside the band could signal a reversal.

Conversely, a series of closes outside the lower band might signal the beginning of a bearish trend. Support may lie at the previous lows of 1.11065 and 1.10898.

On the topside, resistance could be offered at the recent high and pivot point of 1.12743 and 1.12803 respectively.

EUR/USD CHART

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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