FOREX fundamental analysis for September 6, 2022
The dependence of the European Union on Russian gas has become a major factor in the EUR/USD exchange rate. Traders have stopped paying attention even to such important news as the U.S. labor market report, meeting of the Fed or the ECB. The stoppage of Nord Stream brought the pair down to 20-year lows. However, despite the constant blackmailing of the Kremlin, Europe is looking for alternative fuel supplies and coping with the preparations for the winter season. Gas prices are gradually falling. This makes the prospects of the single currency not entirely hopeless.
Notably, but it is the cost of "blue fuel" that not only depends on the possibility of raising the rate at the September ECB meeting, but also the size of monetary easing. It is expected that in the current environment the regulator can afford a rate hike of 75 basis points at once, without fear of further recession.
Forex trading has become heavily dependent on the major currency risk. Investors are discussing two short-term scenarios for the dynamics of trading instruments. The first, negative from Citi supposes the continuing growth of energy prices, cold winter, inflation takeoff and total collapse of the Eurozone economy. The other scenario suggests an expansion of fiscal stimulus, the suspension of derivatives trading and marginal prices for fuel supplies from Russia. Today it is quite possible that the Kremlin overestimates the possibilities of gas blackmail, and the European currency has already taken into account all the consequences of stopping supplies from Russia. But there is no possible "hawkish" surprise in the euro quotation.
Yesterday the European currency was supported by the British sterling. One of the drivers of the pound decline were fears that the post of the British Prime Minister will be taken by Liz Truss. After her victory, selling on rumors gave way to buying on facts.
However, in the medium term, the EUR/USD scenario remains bearish. The Eurozone's problems will not be solved overnight, and the energy crisis brings a long trail of problems while the United States continues to tighten financial conditions and successfully fight rising inflation. The divergence of monetary policy rates of the regulators and the pace of economic growth will not allow EUR/USD to change the direction of the trend.
Stabilization of gas prices and expectations of hawkish surprises from the ECB allow short-term purchases of EUR/USD from 0.995 with targets at 1.000 and 1.002. If the "bulls" fail to get a grip on 0.995, we expect selling signals in the direction of 0.97.