Euro to Dollar Week Ahead Forecast: Possible Corrective Rebound
- EUR/USD May Cut Losses on Shanghai Headlines
- Probably limited increase as energy supply risks persist
- Russian gas payment delays, a possible trap
© European Central Bank, reproduced under CC license
The euro-to-dollar exchange rate slipped to a five-year low last week, but could attempt a corrective rebound in the coming days if global markets find reason to welcome signs that the “ China’s strictest lockdown to date may be coming to an end.
Europe’s single currency extended a nearly 18-month long downtrend with a tumble to its lowest level since 2017 last week, but could potentially try to pare losses over the next few days following the revelation that Shanghai is on the about to begin a gradual reopening of China’s toughest ‘lockdown’ so far.
“The impact of the Shanghai lockdown is considerable. Economic and technological ties with the rest of the world are under threat,” says Raymond Yeung, chief economist for Greater China at ANZ.
Shanghai’s shutdown has been a major source of market risk aversion in recent weeks, as the city is home to China’s largest seaport, which is also the world’s largest for its importance in supply chains. international goods manufacturing companies.
Above: Euro to dollar exchange rate displayed at daily intervals with renminbi to dollar exchange rate. Click on the image for a closer inspection.
“Oil remains above $100 despite the lockdown across much of China, which Shanghai may lift slightly from May 16,” said Michael Every, global strategist at Rabobank. “Imagine how high oil would be with China open.”
However, any early tailwinds for the euro-dollar rate will likely be tempered by lingering market concerns over the security of Europe’s energy supplies from Russia after Ukraine’s national gas pipeline operator halted some flows via its gas pipelines to Europe last week.
The shutdown was followed by the Kremlin’s decision to ban gas sales and other dealings with a handful of major European companies, while both events sparked fresh speculation about the risk of a falling euro. towards parity with the dollar in the weeks or months to come.
“Our economists estimate that a complete loss of Russian supplies, combined with rationing of the rest, could lower eurozone GDP by more than 5pp year-on-year,” says Marek Raczko, FX strategist at Barclays.
Last week’s disruptions came ahead of payment deadlines for major European buyers of Russian gas which are widely reported to be due this week and which could potentially see other countries join Poland, Bulgaria and Lithuania. among the ranks of those whose deliveries have been suspended. .
Above: Euro exchange rate against the dollar displayed at daily intervals with Fibonacci retracements of the February and April falls indicating possible areas of technical resistance to any rally in the euro. Click on the image for a closer inspection.
“If Russia closes its gas taps, we expect EURUSD to fall below parity,” Raczko and colleagues at Barclays said in a research note on Friday.
While the mood of global markets and developments related to energy supplies from Russia are important for the single currency, it and the dollar are also likely to be sensitive to the implications of the European Central Bank’s remarks. (ECB) and Federal Reserve (Fed) policy makers.
On that front, ECB President Christine Lagarde is due to address a Soroptimist International charity event at 6 p.m. London time on Tuesday, just an hour before Fed Chairman Jerome Powell is due to talk about inflation at an event hosted by The Wall Street Journal.
“The euro has clearly struggled to reap tangible benefits from the increasingly hawkish tone of ECB policymakers, which in our view boils down to the already quite aggressive tightening expectations (80-85bp entirely integrated by the end of the year)”, says Francesco Pesole. , strategist at ING.
“Now the next major support to watch is the 1.0340 January 2017 low. A break below such a level would make the risk of EUR/USD hitting parity quite significant,” Pesole and his colleagues in a Friday research note.
Above: Euro versus dollar exchange rate shown at monthly intervals with Fibonacci retracements of the 2000 and 2017 uptrends indicating areas of long-term technical support for the euro and resistance for the dollar American. Click on the image for a closer inspection.