The euro soared by more than 1% after the release of a series of positive news on the Russian-Ukrainian negotiations. Euro bulls began to look closely at the test of average monthly highs in the area of 1.1120–1.1130.
The talks in Turkey surprised with progress, Russian mediator Vladimir Medinsky called them constructive. Moscow will suspend, but not stop, its activities around Kiev in order to create more comfortable conditions for further dialogue. If positive signals are received from the Russian and Ukrainian negotiators, this may lead to a further increase in the EUR/USD exchange rate. A breakthrough of the psychologically important level of 1.1100 and recent highs will open the door to the value of 1.1180.
It is worth noting that the EUR/USD pair, from a technical point of view, and before the announcement of news about the new round of negotiations that started on Tuesday, gave signals for growth. Bulls have successfully broken through the 21-day moving average, currently at around 1.1005.
An additional factor in the upward movement of the single currency could be the situation with eurozone government bonds. Yields on major European securities rose on Tuesday, and German debt yields rose for the third consecutive day amid higher yields on US Treasury bonds and European Central Bank comments this week. Money markets are raising their bets on tightening monetary policy in Europe. Investors began to put a 67 bps rate increase in prices before the end of the year.
The topics (the Russian-Ukrainian conflict and eurozone bond yields) that have started to rise these days and will continue to remain in the spotlight until the end of the week are quite sensitive for the euro. With the continuation of the positive trend in negotiations and the growth of preliminary data on inflation in the euroblock, the EUR/USD pair will have the opportunity to continue the recovery movement.
These two topics can play an even bigger role than the US statistics series. ADP jobs will be announced on Wednesday, followed by the base PCE on Thursday and the official employment report plus ISM in the manufacturing sector on Friday.
A breakthrough above 1.1150 will favor a steady advance towards the 1.1230–1.1240 price zone. Support levels are located at 1.1070, 1.1020, 1.0965. Resistances are at 1.1150, 1.1190, 1.1230.
Another important point this week for the euro should be the gas theme. So far, the markets completely ignore the risk of Russian gas disconnection for the EU countries. The situation is as follows: gas needs to be bought in rubles, the eurozone categorically refuses, calling this option unacceptable for them. The rhetoric of the representatives of the Russian authorities indicates that, in case of refusal of payments in rubles, the gas will be turned off. Such a decision can be announced directly on March 31.
Turning off the gas will not lead to a catastrophe in the short term. There are reserves in the vaults, as far as we know, they make up 25%. However, stocks are not eternal, and in April, cold weather is expected in Europe, and the level of storage capacity will begin to decline again. Spot gas prices are likely to jump.
The real problems will begin in the fall. Maybe by this time, European leaders will agree to return to the issue of buying gas for rubles. At the moment, they are not ready to accept the Russian ultimatum.
For the euro, this is, after all, a negative moment. Under normal conditions, such risks are recouped in advance on the principle of "enter the market on expectations, close on the fact". There are cases when the actions are exactly the opposite, nothing happens before the expected event. Further, in fact, the initial reaction is even redeemed, the price is returned back. And only after some time the price begins to win back the news in the right direction. It is possible that the gas theme will be played out precisely according to this scenario.
