The euro again had difficulties in parity against the US dollar but could withstand them, preserving the possibility of a minor upward adjustment by the end of the week. Nonetheless, the pressure on risky assets remains quite high, as evidenced not only by the lack of desire to purchase at current lows but also by the recent forecasts of the European Commission, which state that the recovery of the eurozone following the pandemic will be significantly weaker than anticipated.
The eurozone's gross domestic product is anticipated to rise by only 2.6% this year and by only 1.4% in 2023 due to rising costs of demand and the possibility of winter energy shortages. During May, the respective percentages were 2.7 percent and 2.3 percent.
The inflation rate in the eurozone has already reached a record high, which is more than four times the European Central Bank's target rate of 2 percent. According to the European Commission's projections, it is predicted to reach 7.6 percent in 2022 and at least 4 percent the following year. During May, the respective figures were 6.1% and 2.7%.The specter of a severe recession looms over the European economy like a snowball. And if it is not as evident in the summer, Europe will feel the effects of the sanctions placed on Russia in the fall, when the arrival of cold weather coincides with delays in natural gas supplies and a steep price increase.
What powered the economy at the end of last year and the start of this year – Europeans' savings in response to unmet demand during the coronavirus outbreak – no longer functions. Summer is ending, and the energy problem will soon become a reality. Germany's most dependent producers on Russian gas are experiencing severe problems. In light of this, investor sentiment regarding the country's prospects is at its lowest level since the European debt crisis, which adds to the pressure on risky assets and depreciates the euro. Given that the worst is yet to come for the euro, it is not surprising that traders are in no haste to purchase even partites.
Some experts feel that a recession in Europe is unavoidable even if the Kremlin decides not to cut off energy supplies to EU members because excessive inflation is perilous and makes it difficult for the European Central Bank to stimulate the economy further. To offset the price increase, it is necessary to increase the cost of borrowing, which is not to everyone's liking. Countries with a large debt burden will experience the most difficulty. Yesterday, Mario Draghi, the Italian prime minister, announced that he would leave his position. What are the implications if the former head of the European Central Bank is already "washing his hands"?
The likelihood of an economic slump in the eurozone has grown to 45% from 30% in the previous study, and 20% before Russia's military special operations in Ukraine began.Regarding the euro's technical outlook, there is now "no odor of purchase." Only a rebound to 1.0050 will assist in mitigating the deteriorating bearish picture. If consolidation occurs at this level, the area between 1.0110 and 1.0180 will be favorable for recovery. Despite this, bulls will not be able to gain control of the market. "We shall hang around in the side channel once more." In the case of further depreciation of the euro, buyers must demonstrate activity at 1.0000; otherwise, the pressure on the trading instrument will intensify. Having missed 1.0000, you can bid goodbye to any dreams for the pair's recovery, as this opens the door to 0.9950. A breach of this level of support will almost certainly raise the pressure on the trading instrument, creating an opening for a test of 0.9915.
The pressure on the British pound continues, and it is currently difficult to predict who will emerge victorious. Under present market conditions, it is feasible to speak about a significant upward corrective, but only when the bulls break above the 1.1850 resistance. After that, you can anticipate a breakout into the 1.1920 region, where purchasers would find considerable challenges. In the event of a more significant upward movement of the pound, we can discuss revising 1.1980 and 1.2030. If bears break below 1.1780, the pound will immediately decline below 1.1700. A breach of this range would further decline to a minimum of 1.1640.
