EUR/USD ANALYSIS
EURO FUNDAMENTAL BACKDROP
Yesterday’s threat of oil[4] sanctions on Russia pushed the Euro[5] deeper into weakening territory supported by an ever diverging Federal Reserve[6] and ECB[7]. The Euro zone is geographically disadvantaged relative to the U.S. which seems obvious but is important to point on from a financial markets perspective where U.S. assets are generally less effected by the Russia/Ukraine conflict. Many countries within the Euro zone has been on a drive to rid themselves of fossil fuels which have left them severely exposed under the current circumstance. Should Russia completely shut off Europe from energy supply, the already failing Euro zone could come under further pressure leaving the Euro open to additional downside risk.
According to Bloomberg news, the EU is planning on a large-scale bond issue to help finance energy and defense needs in 27 member states, and could be communicated later this week at the emergency summit in France. Markets initially reacted favorably to the announcement with the Euro ticking higher against the dollar alongside German bund yields.
10-YEAR GERMAN BUND YIELD:
Source: Refinitiv
The upcoming ECB meeting (March 15) may be one of the most important in recent history as officials juggle the idea of almost certain higher inflation[8] with stagnating growth in Q2 at a minimum. We are likely to see fiscal easing in an attempt to shield consumers from rampant inflation as monetary policy (rate hikes) cannot address the shortage in commodity supplies.
EU GDP[9] for Q4 printed in line with estimates both QoQ and YoY
