EUR/USD analysis: Euro to fall below parity on EU gas crisis?
Europe's wholesale natural gas price (Dutch Title Transfer Facility
TTF1!
) rose to levels not seen since the aftermath of Russia's invasion of Ukraine, bolstered by a mixture of continuing supply disruptions from Russia and soaring demand for power generation in the midst of persistent heatwaves across Europe.
Gazprom (
GAZP
) announced that European gas prices could increase by 60% this winter, as the company's exports and production continue to fall as a result of Western sanctions.
From a macro standpoint, the European gas crisis is wreaking havoc on the economy of the Eurozone and this effect has already been quite visible on the
EURUSD
trend in 2022. European and
NATURALGAS
price differentials have been widening to their all-time highs, and the EUR/USD currency pair is just 1.7% far from hitting parity again.
EUR/USD fundamental analysis: EU/US gas price spread plays a key role
According to the most recent NYMEX/CME Group data,
NG1!
are currently trading at a $57/MMbtu discount (
THD1!
) relative to Europe's Dutch TTF benchmark as of mid-August 2022.
The link between
EURUSD
and
THD1!
has increased significantly over the course of the summer, with the rolling 90-day correlation coefficient rising to 0.82. This is basically telling us that the lower US natural gas prices trade compared to the European Dutch TFF prices, the stronger the downward pressure on the EUR/USD pair.
Along with the economic growth and interest rate disparities between the two regions, the more severe natural gas crisis that Europe is experiencing compared to the United States is now a key macro factor affecting the EUR/USD exchange rate.
EUR/USD forecasts: The pair could fall below parity if EU/US gas spread widens further
If the European gas crisis worsens in the coming months, the price differential between EU Dutch TTF and US Henry Hub natural gas could widen further, which would likely cause the EUR/USD pair to break decisively below the parity threshold.
A de-escalation in the Russia-Ukraine conflict, coupled with a decline in the price of Dutch TTF gas, will be a key factor in preventing a further depreciation of the single currency. However, this second scenario appears much less likely.
Idea written by Piero Cingari, forex and commodity analyst at Capital.com
TTF1!
) rose to levels not seen since the aftermath of Russia's invasion of Ukraine, bolstered by a mixture of continuing supply disruptions from Russia and soaring demand for power generation in the midst of persistent heatwaves across Europe. Gazprom (
GAZP
) announced that European gas prices could increase by 60% this winter, as the company's exports and production continue to fall as a result of Western sanctions. From a macro standpoint, the European gas crisis is wreaking havoc on the economy of the Eurozone and this effect has already been quite visible on the
EURUSD
trend in 2022. European and
NATURALGAS
price differentials have been widening to their all-time highs, and the EUR/USD currency pair is just 1.7% far from hitting parity again. EUR/USD fundamental analysis: EU/US gas price spread plays a key role
According to the most recent NYMEX/CME Group data,
NG1!
are currently trading at a $57/MMbtu discount (
THD1!
) relative to Europe's Dutch TTF benchmark as of mid-August 2022. The link between
EURUSD
and
THD1!
has increased significantly over the course of the summer, with the rolling 90-day correlation coefficient rising to 0.82. This is basically telling us that the lower US natural gas prices trade compared to the European Dutch TFF prices, the stronger the downward pressure on the EUR/USD pair. Along with the economic growth and interest rate disparities between the two regions, the more severe natural gas crisis that Europe is experiencing compared to the United States is now a key macro factor affecting the EUR/USD exchange rate.
EUR/USD forecasts: The pair could fall below parity if EU/US gas spread widens further
If the European gas crisis worsens in the coming months, the price differential between EU Dutch TTF and US Henry Hub natural gas could widen further, which would likely cause the EUR/USD pair to break decisively below the parity threshold.
A de-escalation in the Russia-Ukraine conflict, coupled with a decline in the price of Dutch TTF gas, will be a key factor in preventing a further depreciation of the single currency. However, this second scenario appears much less likely.
Idea written by Piero Cingari, forex and commodity analyst at Capital.com