Technical Analysis

Euro Hits Fresh Lows As Russia Escalates European Energy Crisis

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    Europe’s major currencies are trading lower once again today after Russia decided to shut its Nord Stream 1 pipeline that supplies much of Europe with gas. Understandably, this move from Moscow sent gas prices soaring on Monday, which also pushed the pound and euro further lower compared to the U.S. dollar.

    On Friday, Russian energy giant Gazprom (MCX:) announced it doesn’t plan to resume gas supply via its ket Nord Stream 1 pipeline to Germany. Energy analysts were expecting such a move from Putin’s regime given that hours before Gazprom’s announcement the .

    Energy Crisis Deepens

    Russian officials denied that Gazprom’s decision is a retaliating move but rather the company is allegedly struggling to operate the pipeline after detecting a leak. As such, the gas supply won’t resume until the work is fully implemented.

    Gazprom said in a statement:

    “Gas transportation to the Nord Stream gas pipeline has been completely halted until the complaints on the operation of the equipment have been eliminated.”

    Two days earlier, Gazprom said it completely halted gas supply via Nord Stream 1 for the next three days. At that point, the energy giant said it was due to continue with the supply on Saturday morning.

    However, Friday’s move has further deteriorated the energy situation in Europe. Germany is already prepared to significantly decrease the availability of power for households and businesses for the upcoming winter period. It said recently that its storage facilities are almost 85% full.

    Eric Mamer, the European Commission chief spokesman, said:

    “Gazprom’s announcement this afternoon that it is once again shutting down Nord Stream 1 under fallacious pretenses is another confirmation of its unreliability as a supplier.”

    Euro’s Struggles Continue

    European equities are also trading lower on Monday, ahead of the much anticipated European Central Bank (ECB) on Thursday. Analysts are widely expecting the ECB to deliver its first 75-bps rate hike in response to soaring , which would lead to at least some temporary relief for European banks, as well as the insurance industry.

    On the other hand, the euro has continued to struggle in staging a relief rally as the “sell-the-rip” trend still dominates the price action. The major pair dipped below $0.99 for the first time since December 2002 and is now likely heading towards the $0.96 handle.

    Last week’s technical developments in were of major significance given that the price action was rejected at the retest of the key bull/bear line around the parity. The forex market has already seen a deep daily close on Thursday as the rebound attempt on Friday proved to be unsustainable.

    EUR/USD Daily Chart

    In response to this technical failure, as well as the worsening energy crisis in Europe, the pair gapped lower on Sunday night before visiting the territory below $0.99 for the first time in 20 years. The next target for the bears is $0.9580—the zone which hosts a 127.2% Fibonacci extension support.

    The weakness in EUR/USD coincides with the soaring (DXY), which hit $110 for the first time since June 2002.

    UK Has A New Prime Minister

    As continental Europe is still focused on energy headlines and Ukraine, the markets in the UK reacted today to the news that Liz Truss is the U.K.’s new prime minister.

    Truss won the leadership race after 81,326 members of the Conservative Party voted for her over the last few weeks, in comparison to 60,399 members who voted for UK’s former finance minister Rishi Sunak. The Conservative Party announced that turnout was 82.6%.

    In her winning speech, Truss doubled down on her plan to cut taxes “boldly” to support the British economy. Her first few months in the office are likely to be dominated by the cost-of-living crisis and surging energy prices.

    Eurasia Group’s Mujtaba Rahman and Henning Gloystein said in a note to clients:

    “Once in power, Liz Truss will likely be forced to take more drastic action to prevent winter supply shortages.”

    “Alongside her “fiscal intervention,” Truss is also likely to unveil an energy package, which while aimed primarily at domestic consumers, will cover questions like storage, raising production, and ensuring that the UK’s Norway stream is secure.”

    In response to the official news from the Conservative Party, the UK benchmark stock market index rebounded off session lows while the pound dropped about 15 pips.

    Similar to EUR, the pound gapped lower on Sunday night in response to the escalation of the energy crisis on Friday. Today’s low of 1.1434 marks the lowest price seen in since the coronavirus-induced selloff in March 2020. In case the pair breaks below the 1.14 handle, GBP/USD will visit levels last seen in 1985.

    GBPUSD Daily Chart

    GBPUSD Daily Chart

    Another major push lower in GBP/USD could take place on the back of the monetary policy divergence, the looming recession in Europe, as well as the deepening energy crisis. In this scenario, the sellers would likely aim toward the all-time low of $1.0520.

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