EUR/USD Slides Further on Energy Woes and US Dollar Flex
EUR/USD Price, Chart, and Analysis
- German energy giant hammered by Russian gas embargo.
- ECB warns of slowing growth and recessionary fears.
- EUR/USD moves lower and parity is set to be tested again.
German energy giant Uniper posted a staggering EUR12 billion loss for H1 2022 on Wednesday as the energy crisis in Europe’s largest member state continues. The company was given a EUR15 billion bailout in July - for 30% of the company’s shares - by the German state to keep the energy solvent as it tries to stay afloat in the face of sharply reduced gas flows from Russia. With near-term energy prices continuing to hit record levels across Europe, further growth-stymying energy restrictions look likely in the weeks and months ahead.
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The latest FOMC minutes, released yesterday, showed the Federal Reserve set on hiking interest rates further with a proviso that it ‘would become appropriate at some point to slow the pace of policy rate increases’. The minutes gave the market little to work with and the US dollar remained better bid on higher short-term interest rates. The markets are now looking ahead to next week’s Jackson Hole Symposium for any further news or timing from the Fed.
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The US dollar today touched a fresh three-week high. The greenback remains supported by short-term UST yields with the UST 2yr on offer at 3.29%, the highest level since mid-June.
In an interview with Reuters this week, ECB executive board member Isabel Schnabel warned that growth in the single block will continue to slow and that a recession cannot be ruled out, adding that Germany will likely be hit the hardest. Ms. Schnabel added that ‘inflationary pressures are likely to be with us for some time, they won’t vanish quickly’, while there is also a risk that inflation expectations get de-anchored.
EUR/USD remains in a multi-month downtrend and with little in the way of either fundamental or technical support, the pair look set to test parity once more. A small support zone between 1.0100 and 1.0120 may slow the move lower, but a further re-test of 1.000 and the July 14 low at 0.99523 looks increasingly likely.
EUR/USD Daily Price Chart August 18, 2022
Retail trader data show 62.10% of traders are net-long with the ratio of traders long to short at 1.64 to 1. The number of traders net-long is 3.75% lower than yesterday and 25.12% higher from last week, while the number of traders net-short is 3.29% higher than yesterday and 16.02% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/USD trading bias.
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