Despite the recent gains of the EUR/USD currency pair, which recently affected the resistance level 1.0482, it stabilized after selling operations around the level of 1.0292 at the time of writing the analysis. EUR/USD retreated at the beginning of the week’s trading towards the support level 1.0222. Due to the performance, the rise in natural gas prices in the euro area was identified as a negative threat to the euro as seen by FX analysts. However, analysts at one European bank say there is "less pain in the pipeline" for the bloc and its single currency. TTF benchmark prices for natural gas in Europe for delivery a month earlier rose to 115 per megawatt hour at the start of the week, after as low as 97 in October. “Natural gas prices are already starting to rise, and if it continues to cool on the continent, that could help push EUR/USD lower again as well,” says Brad Picktel, forex analyst at Jefferies LLC.
Analysts say the rise in gas prices comes as temperatures drop in Europe after an unusually mild autumn that allowed countries to stockpile gas reserves and use less gas than is usually the case at this time of year. For his part, Sean Callow, an analyst at Westpac, says: “The Dutch TTF contract for the month of December rose 18% last week on the back of signs of cooler weather in the northern regions.”
Lower gas prices and easing fears that the Eurozone will not run out of gas this winter were one of the factors driving the euro's recent recovery against the dollar. The euro had fallen against the dollar and other major currencies in the aftermath of the Russian invasion of Ukraine as investors feared a Russian gas cut off. This has already happened with the Nordstream 1 pipeline now completely unusable and Nordstream 2 not yet operational. Only limited amounts of Russian gas reach Europe through other, smaller pipelines.
The EUR/USD exchange rate fell to a multi-year low of 0.9535 on September 28, but has since recovered to 1.0400, thanks to a number of factors, most notably a broader shift in the dollar's value. For his part, Gene Foley, Chief Forex Analyst at Rabobank, said, “The expectations have been boosted by the European Central Bank’s hawkish stance and hike of interest rates by 75 basis points on October 27, by the decline in European gas prices last month, and by the withdrawal of Russian forces from Kherson. However, the market's interest is where it's headed. The gas will come in the winter of 2023.”
Euro Recovery Coincides with Gas Demand
The temperatures in Germany have dropped significantly. Looking ahead, Berenberg says there is less pain in the pipeline in the eurozone thanks to the unusually mild weather that has allowed the EU to fill its gas storage facilities to 95.5% of capacity.
Germany reached 99.9% of its storage capacity on November 12.
According to analysts, the rise in natural gas prices and concerns about gas shortages in the winter season are the only reasons for the recession of the eurozone. Once the winter is over, we expect consumers and businesses to breathe a sigh of relief. After stabilizing in the spring of 2023, we look forward to a V-shaped recovery to return real GDP to its peak in the third quarter of 2022 by early 2024. Berenberg expects the euro to be better supported during 2023, “but gas is the key.” to these assumptions.
Technical analysis of the EUR/USD today:
- EUR/USD is starting to be bullish, as higher lows can be connected by a bullish trend line visible on the 4-hour time frame.
- The price is retracing its recent high and may fall back to this support area soon.
- The Fibonacci retracement tool is showing that the 61.8% level lines up with the trend line and the dynamic inflection point of the 200 SMA.
- A lower decline might actually find buyers at the 38.2% Fibonacci retracement around 1.0200 or the 50% level that coincides with the 100 SMA.
Currently the 100 SMA is above the 200 SMA to confirm that the general trend is up and that the support levels are more likely to hold than to be broken. In this case, EUR/USD may soon make its way to the swing high of 1.0478 or higher. Stochastic is already signaling oversold or exhausted levels among the sellers, so a shift higher means buyers are ready to take over. The RSI has more room to slide before reaching the oversold zone to indicate that sellers need to break out.
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