EUR Rebounding On Fiscal Hopes
We’re seeing a more buoyant tone in EU markets today as investors react to news that EU leaders are preparing a joint fiscal response in reaction to the soaring energy prices caused by the war in Ukraine. The EU is reportedly weighing up options, including a huge issuance of joint debt (EU bonds) which would be used to help fund the energy and defence spending across the eurozone.
Response to Ukraine Impact
The need for some sort of action is clear. Energy prices, which were already elevated ahead of the Ukraine crisis, have since surged even higher. With inflation rising globally and energy prices trending higher for months, the impact on consumers has become unbearable for many. The fear is that such conditions will ultimately unseat the post-pandemic economic recovery. Additionally, with the risk that the crisis in Ukraine ends up becoming a protracted situation, financial conditions for many will likely become much tighter.
Downside Risks
While the details of such any measures are as yet unconfirmed, the reporting of a potential joint action has already ben met with relief in markets. EU assets are trading higher today as risk premiums begin to be cautiously unwound. However, there are reservations. Given the difficulties the eurozone had in agreeing a joint fiscal response to the COVID crisis, we are likely to see similar disputes and debates this time around meaning that any action will likely not be immediate. Already we have heard the Dutch administration calling for caution over any plans to bolster defence spending.
Reducing Dependence on Russian Energy
EU leaders will meet tomorrow for a special summit to discuss possible measures. Along with the joint fiscal response, EU leaders will also discuss options for reducing dependence on Russian oil and gas imports, in line with the move announced by the US president this week. The EU is not expected to move as boldly as the US and instead will discuss the plan set out by the European Commission this week for reducing dependence long term, aiming for independence from Russian energy by 2030.
Technical Views
EURUSD
EURUSD is attempting to recoup some losses this week. The demand found on a test of the 1.0885 level has seen the market turning higher, with price now re-testing the broken bear channel ahead of 1.10 resistance. With both MACD and RSI bearish, market remains vulnerable to further downside. If bulls can break 1.10, however, the bigger focus will be on a test of the 1.1190 level and bear channel top.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.