EUR/USD Posts 5-Year Lows, Heads Towards Another Losing Month
Risk Factors Weigh
There are various risk sources that weigh on sentiment, with the latest one coming from Gazprom, as the Russian energy firm announced earlier today that it will fully hault gas supplies to Bulgaria and Poland. [1]
This action was taken because the two countries did not pay in Rubles for their gas imports, in the aftermath of last month relevant demand by Russian President Putin. [2]
Russian-Western tensions are elevated after Germany announced that it will be supplying tanks to Ukraine [3], while Russian Foreign Minister Lavrov talked of serious danger of nuclear conflict [4].
Fed-ECB Policy Differential
The European Central Bank has been moving towards a more hawkish direction, as it expects to conclude the asset purchase program (APP) in Q3 and increase rates after that. Last week, Vice-President de Guindos said that the APP should end in July and did not rule out rate liftoff in the same month, when asked in an interview with Bloomberg. [5]
However, the Fed is far ahead, since it has already hiked rates last month by 25 basis and has since been preparing markets for a larger adjustment in next week's meeting. Chair Powell alluded to that last Thursday, noting that "I would say 50 basis points will be on the table for the May meeting" in an IMF panel. [6]
Furthermore, the US central bank has already concluded its asset purchases and gears up for the reduction of its nearly $9 trillion balance sheet, potential as early as May.
EUR/USD Analysis
The above factors weigh on the common currency, which sheds around 4% on the month against the greenback, runs its fifth straight losing day and posts five year lows today. This brings 1.0494-56 in the spotlight, but it may be early for a breach that would expose it to the 2017 multi-year low (1.0339).
From a technical prospective, the move is overextended and this could help the pair catch a breath and return back above mid-1.0600s, but a strong catalyst will be required for a rebound that would challenge 1.0805.
Nikos Tzabouras
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 27 Apr 2022 https://twitter.com/GazpromEN/status/1519208376013664256 | |
| Retrieved 27 Apr 2022 https://www.youtube.com/watch | |
| Retrieved 27 Apr 2022 https://www.deutschland.de/en/news/germany-agrees-to-supply-tanks-to-ukraine | |
| Retrieved 27 Apr 2022 https://www.youtube.com/watch | |
| Retrieved 27 Apr 2022 https://www.ecb.europa.eu/press/inter/date/2022/html/ecb.in220421~8f5354b0fb.en.html | |
| Retrieved 16 May 2022 https://www.youtube.com/watch |
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