Societe Generale Research discusses the outlook for EUR/USD and maintains a bearish bias towards the end of the year.
“Open your eyes, look to heaven and see; Europe is caught in a landslide: the ECB’s monetary policy is less important than President Putin’s gas export strategy. Nordstream 1 came back online yesterday, but markets are not comforted. Not when even the President of the European Commission acknowledges that “Russia uses energy as a weapon; It is a likely scenario that there is a full cut off of Russian gas and that would hit the European Union for a while”. So, the euro pre-ECB euro rebound after failing to break convincingly below parity with the dollar, has not been given a further boost by a 50bp rate hike and is not supported by the market now pricing in a 1% discount rate before Christmas,” SocGen notes.
“The big problem is that the most optimistic outcome for the rest of this year is as long as President Putin keeps the gas flowing, he continues to use uncertainty about how much will flow as a bargaining tool and as a means of sowing uncertainty and discord between the Europe’s political elite.
That still leaves the Euro, by all intents and purposes, unbuyable for the time being (probably for the rest of this year as the supplies of lift gas afforded to the Russian President are at their best in the winter),” SocGen adds.