Winter is coming for the EUR – Nordea
According to Dane Cekov, Senior Macro & FX Strategist at Nordea Markets, a break below the 0.9500 mark for the EUR/USD pair will open the room for a move down to as low as 0.9000 mar.
Key Quotes:
“Europe has lately been the epicentre of a perfect storm in energy markets. The energy price shock has and will continue to impact the industrial sector, leading to a negative terms-of-trade shock for the Euro Zone. Goods that were previously produced in Europe will now have to be imported from countries elsewhere where energy prices have not risen as much as in Europe. Worsening terms of trade argue for a weaker Euro ahead.”
“It is extremely difficult for Europe and Germany in particular to diversify its gas supply quickly in the short-term. More LNG will come, but it will be costlier than the Russian gas Germany has been accustomed to and it will take time before the infrastructure is in place for significant volumes. More rainfall ahead will help European hydropower production – we need the weather gods to be benevolent with Europe with a wetter and warmer winter. Moreover, France needs to get its atomic power reactors back on track, this will also take time but should be resolved during next year. Some of the factors behind the energy crises should improve in the coming period, but the winter heating season is nearly upon Europe and the risks for energy rationing are hanging over Europe’s head.”
“Political fragmentation in Europe has increased with far-from-the-centre political parties winning elections – look at Italy and Sweden. The Euro is a political project and if EU’s politicians suddenly don’t get along, then we could see the Euro’s existence brought into question – similar to the case during the 2010 Euro crisis.”