EUR/USD: Under pressure on energy shock – ING

ING’s Chris Turner notes EUR/USD has slipped below 1.1500 as higher Dollar-denominated energy costs hurt most European corporates. He highlights limited technical support until the 1.1390/1.1400 area and warns that widening peripheral eurozone spreads and fiscal responses to high energy prices could become a bigger story for Europe than for the United States.

Euro slides with widening spreads risk

"EUR/USD is just breaking below 1.1500 in early Europe. European corporates with dollar receivables are welcoming the news, but for the vast majority of European corporates, the higher dollar payables of energy costs are painful. Below 1.1470, there is little support until the 1.1390/1400 lows seen in early August last year."

"Another trend that bears watching is the widening in peripheral eurozone sovereign spreads."

"Low volatility and the search for carry had seen the markets drive peripheral spreads to very narrow levels indeed earlier this year – e.g. 50bp for 10-year Greece-Germany sovereign spreads."

"The current widening probably reflects just de-leveraging, but investors will now be tracking government support measures to protect consumers from higher energy prices and what that means for the fiscal outlook. Again, that could be a bigger story for Europe than for the US."

"EUR/USD could struggle to make it back above 1.1500/1525 today unless there is some clearly positive news out of the Gulf."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)