- EUR/USD plunged to a 2-decade low over the week, exploring the 0.99 lows.
- Higher energy costs weaken the common currency.
- Any rebound could be a bear rally unless the market reclaims the 1.05 mark.
The USD remained elevated against the euro, with the EUR-USD exchange rate plummeting to 2-decade lows. The pair explored the lows of 0.99 yesterday, following a somewhat vertical fall since the pair’s exchange rate hovered at 1.20 early this year. Multiple factors continue to pressure the euro.
First and foremost, the rate differential between these banks. While the ECB (European Central Bank) hiked interest rates gradually, the Fed resorted to quicker hikes. Furthermore, the Federal Reserve plans to maintain the stance, citing soaring inflation.
Secondly, the Ukrainian war triggered a surge in gas prices. Europe’s reliance on Russian energy means increased imports from the US at massive costs. Europeans sell euros and purchase dollars to pay for the record-high costs.
Thirdly, the long-term technical outlook reveals a breach of enormous support. EUR/USD has rebounded from the 1.05 pivotal zone for years. However, the narrative changed recently as the pair broke beneath the mark.
Gas Prices Weigh on the Euro
The energy crisis primarily triggered the Eurozone trade slump. Paying massive prices for international energy saw European countries weakening the common currency (indirectly. However, aren’t weaker currencies lucrative for exporting countries?
Yet, it is. Nevertheless, weaker currencies aren’t attractive when inflation approaches the double-digit region. That had traders predicting that the ECB won’t tolerate more EUR-USD weakness.
Russia-Ukraine Conflict Hiked Gas Price to Record Highs
Europe has seen natural gas prices hitting extreme levels. Meanwhile, the Eurozone amplified gas imports from the United States to reduce reliance on Russian energy. Nowadays, gas shipment to Western Europe from the US nets profits of approximately $200 million. Thus, America seems to benefit from the war while far from the regions while enjoying massive profits due to the energy crisis.
EUR/USD Bearish Beneath 1.05 Pivot
It’s challenging to predict EUR-USD’s next move. However, the decline beneath 1.05 remains significant when interpreting the broad picture. Meanwhile, EUR-USD stays bearish as it remains beneath this pivotal mark, and any bounce would mean a shorting opportunity.