English (UK)

Analysis

Some optimism for the eurozone as energy prices soften

Research Strategist

30 Aug 2022

Euro assets have stabilized as gas and electricity prices fall. This is creating more volatility for traders to exploit. Read below to find out more

The eurozone is receiving some temporary respite as news hit the wires of a potential intervention to stem the parabolic rise in electricity and gas prices. Additionally, the EU has reached the 80% gas storage level looks very likely (currently at 79%) to be met further adding to the optimism. This led to both benchmark gas and electricity prices in Germany falling by over 20%. The euro and DAX40 consequently saw a relief rally on the back of this. However, the optimism needs to be tempered. Nord Stream 1 is set to be turned off for 3 days from tomorrow and there are fears that it could remain offline for longer. Getting storage above 80% is important, but if gas flows are turned off during winter there is only so much buffer that will provide. French utility Engie SA received news that gas supplies would be immediately reduced due to a contract disagreement. French Energy Transition Minister Agnes Pannier-Runacher stated that they’re ready for the worst case scenario – a complete shut-off.

German inflation on a harmonized basis came in line with expectations of 8.8%. Tomorrow’s eurozone wide figure (exp 9%) will be important before next week Thursday’s ECB meeting. The market places a circa probability of 66% on a 75bps hike. The ECB’s Knot stated today that he is leaning towards a 75bps hike, but is open to discussion. He is one of the more hawkish members on the Governing Council. A hawkish ECB and softening in energy prices is combining to providing a mild tailwind to eurozone assets. However, general risk sentiment is reversing and this is leading to selling across the board. It could be due to the headline regarding Taiwan firing shots at a Chinese drone. Or the solid US consumer confidence and jobs openings data (showing a still tight labour market) which will keep the hawkish Fed narrative alive and well.

EURUSD is back above parity and eyeing the 21-day EMA and 1.0105 resistance level. EURGBP is providing traders with far more volatility and the 0.86 level is 22 pips away. However, the RSI is back at a very key resistance level, which has consistently marked the top for previous price rallies.

(Source: Tradingview EURGBP chart - Past performance is not indicative of future performance.)

Ready to trade?

It's quick and easy to get started. Apply in minutes with our online application process.

The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients. Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.