EUR/USD forecast as Eurozone natural gas prices soar

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Nov 8, 2021
  • The EUR/USD pair rose sharply on Monday.
  • This happened as Eurozone natural gas prices jumped.
  • This will lead to higher inflation in the near term.

The EUR/USD pair staged a comeback as fears of higher inflation in Europe rose. The pair also shrugged relatively dovish statement by the European Central Bank (ECB) chief economist. It is trading at 1.1586, which was higher than last week’s low of 1.1513.

Eurozone inflation to rise

There are indications that inflation in the European Union will keep rising in the near term. This happened as the prices of natural gas kept soaring. The price rose by more than 0.50% on Monday as worries about Russia rose.

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In recent statements, the country’s president has pledged to boost supplies to Europe in a bid to lower prices. However, a closer look shows that the country is not boosting exports. According to Reuters, Gazprom has not booked any new capacity through Ukraine. At the same time, flows through the Yamal pipeline were at zero on Monday. 

Therefore, there are concerns that the situation will lead to substantial inflation in Europe. Besides, energy is one of the biggest constituents of inflation. It will affect customers directly through higher gas prices at home. Also, it will affect them indirectly since companies will need to hike prices to cover the rising costs.

At the same time, the EUR/USD reacted mildly to relatively dovish statement by George Lane, the Chief Economist at the ECB. In a statement, Philip Lane pushed back against ECB’s rate hike expectations. He said that the bank expects that the bloc’s inflation will normalize in the coming months.

The statement came two weeks after the recent ECB interest rate decision. In it, the bank decided to leave interest rates unchanged and to start tapering asset purchases. 

The next key catalyst for the EUR/USD pair will be statements by Christine Lagarde and Jerome Powell scheduled on Tuesday. It will also react to the US consumer inflation data scheduled on Wednesday.

EUR/USD forecast

EUR/USD

The EUR/USD pair rose on Monday. It is trading at 1.1587, which was slightly higher than last week’s low of 1.1513. On the four-hour chart, the pair is slightly above the short and longer-term moving averages. It has also moved close to the Ichimoku cloud while the Relative Strength Index (RSI) has moved higher.

Therefore, the pair will likely keep rising as bulls eye the 50% Fibonacci retracement level at 1.1712. This view will be invalidated if the price drops below 1.1550.

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