EURUSD: buyers are full of optimism

EUR/USD, currency, EURUSD: buyers are full of optimism

FOREX fundamental analysis on August 31, 2022

A number of reputable banks believe that if it were not for the rising cost of gas, the position of the European currency would be quite stable, as the ECB is switching from a wait-and-see attitude to hawkish rhetoric. But forex trading rules out the subjunctive mood. Cost of energy plays a significant role in the euro quotes.

Over the past decade Europe has become very dependent on Russian oil and gas. Now it will take at least two years for the Old World to switch to other LNG suppliers. However, this year Europe benefited from the outbreak of coronavirus in China, which reduced the production activity in the Celestial Empire and, consequently, the consumption of fuel, which Beijing generously resells to European consumers. As a result, filling of Europe's gas storage facilities is happening faster than planned.

In addition, the reduced risk of an energy crisis reduces the likelihood of a recession in the Eurozone, which is likely to be taken into account by the EUR/USD quotations. Now if the threat of the economic recession has passed, maybe it's time to close the EUR selling? Moreover, the head of Bundesbank Joachim Nagel thinks that threat of recession should not prevent the ECB to tighten financial conditions. A number of members of the European Central Bank's Governing Council are calling for a September rate hike of 75 basis points at once. On the futures market the odds of this scenario rose to 60%.

So, the euro has a reason to resuscitate. Another thing is that the competitor of the single currency is much stronger and the energy crisis did not disappear overnight. Consequently, the potential of EUR/USD strengthening is limited.

The continuation of the rally in US bond yields and the decline in stock indices speaks in favor of the dollar. Besides the Fed doesn't leave the tightening of the monetary policy program and will raise the rate at September meeting. And the probability of its increase by 0.75% is already 73%. As representatives of the FRS state, the regulator has a lot of work ahead. It means the dollar is unlikely to cede its positions.

A good point to enter the shorts on EUR/USD is 1.025, but large players can start selling from the area of 1.0115-1.0165.

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Symbols EUR/USD

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