The euro-dollar pair found itself in a stalemate. On the one hand, bears cannot develop a downward trend below the parity level, on the other hand, buyers are unable to organize a large-scale correction above the parity level. In such conditions, any trading positions look risky—both buying and selling.
During the previous two days, EUR/USD sellers showed their ambitions, declining to the base of the 99th figure. However at this price point, traders recorded profits en masse, not daring to storm the 98th price level. Apparently, the key support level has shifted from 1.0000 to a hundred points lower. Despite the powerful downward impulses, the 0.9900 price line resisted and did not allow the bears to go below this target.
Each side has its own arguments and counterarguments. The dollar is getting more expensive due to the strengthening of hawkish expectations amid the growth of anti-risk sentiment in the market. On the other hand, traders cannot fully trust the greenback ahead of Friday's speech by Fed Chairman Jerome Powell. The failed macroeconomic reports published on Tuesday (US services and manufacturing PMI, US new home sales) suggest that Powell may voice a more restrained position regarding the further pace of rate hikes.
Moreover, inflation indicators (consumer price index, producer price index) also showed a slowdown in their growth. Therefore, market participants are not ready to develop a dollar rally in the context of conquering the 98th figure. As a result, the situation is rather unstable: the downward impulse is replaced by an upward rebound, which, in turn, goes out above the parity level.
The European currency is unable to support EUR/USD buyers. The energy crisis is putting background pressure on the euro, foreshadowing a slowdown in the economy in the EU countries with a simultaneous increase in inflation in the eurozone. Gas prices on European exchanges continue to break records: on Monday, the cost of natural gas overcame the psychologically important mark of $3,000 per thousand cubic meters. And we are not talking about a short-term impulse: the value continues to rise, putting pressure on the euro.
For example, today, the price of gas on the European stock exchange exceeded $3,300. Recall that last Friday, Gazprom announced that Nord Stream would stop for at least three days due to scheduled maintenance of the only working gas pumping unit at the Portovaya station (repair work will last from August 31 to September 2).
However, not only this factor increases the price of "blue fuel." A number of experts say that strong demand for LNG in Asia, limited supply from major suppliers, and low filling levels of gas storage facilities in Western countries after a long cold winter last season and an abnormally hot summer this year are also driving the price up, some experts said.
Gazprom recently announced that according to the "most conservative estimates," in winter, the cost of "blue fuel" will exceed $4,000 per 1,000 cubic meters "if the relevant trends continue." Apparently, this forecast will come true ahead of schedule, even before the onset of cold weather.
Thus, the euro continues to be under strong pressure. Moreover, currency devaluation carries more risks than benefits. A cheap euro is not a panacea. Of course, the depreciated single currency makes exports from the euro area more attractive and competitive. But on the other hand, the cost of imports has increased significantly. The energy crisis, supply chain problems, and cost concerns all add up to a fundamentally bleak picture.
In addition, the euro may soon come under additional pressure amid another political aggravation in the Balkans. Just today, the Prime Minister of Kosovo announced that he would no longer postpone the entry into force of the ban on cars with Serbian license plates entering the region.
Let me remind you that initially, the situation on the border of Serbia and Kosovo escalated at the end of July due to the decision of Pristina to oblige Serbs to receive a temporary document on crossing the border when entering the (unrecognized by many countries of the world) republic. Serbian documents in Kosovo wanted to be considered invalid from August 1. But then escalation was avoided by postponing the introduction of the ban until September 1. As we can see, today the Kosovo authorities are taking a more categorical position, stating that they will no longer make any postponements. By the way, the negotiations of the parties in Brussels did not lead to anything. Therefore, the Serbian-Kosovo smoldering conflict may reignite next week.
Thus, despite the negative fundamental background for the euro, it is risky to open short positions below the parity level. First of all, because of the fragility of the position of the greenback. Jerome Powell may well redraw the fundamental picture by weakening the US currency. Therefore, you can enter into sales only above the parity level on corrective surges, where the downward targets will be the marks of 1.0000 and 0.9950.
