FOREX Fundamental analysis on September 12, 2022
The "hawkish" rhetoric of the ECB, lower gas prices and rising stock indices launched the EUR/USD strengthening.
Nevertheless, the fundamental backdrop is still saturated with negativity against the single currency. Capital is fleeing the Old World. According to EPFR Global, managers of large investment assets withdrew $3.4 bln from European equity funds during the week. Over the six months the outflow of funds amounted to $83 bln.
It should be noted that most of the bad news for the euro has already been taken into account by prices, so any burst of optimism is perceived by investors with gusto! On the positive side, we should note Europe's accelerated rejection of Russian energy resources. Whereas before the invasion of Ukraine 40% of the European Union's gas imports came from Russia, this figure has now fallen to 9%. This circumstance contributed to the decrease in prices for the "blue fuel", which became one of the drivers of the EUR/USD growth.
However, it is unlikely that the victorious march of the euro will last for a long time. Gas prices in Europe are still four times higher than last year and eight times higher than in the United States, worsening the trade accounts. The views of the ECB's leadership after September's 75 basis point rate hike are divided. Some governors believe it is necessary to continue aggressive policy at a rapid pace, while others are calling for a slowdown or a pause and look around.
This is in stark contrast to Fed policy, where they are unlikely to give up a 0.75% rate hike in September, even if consumer price growth slows from 8.5% to 8.1%.
In short, we see the EUR/USD rise as a correction, the depth of which will be determined by a number of factors. From the technical analysis point of view of John Murphy, the bulls' inability to break above 1.0125 and 1.0180 will be a signal to exit the longs.