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EUR/USD falls as energy fears rise. The FTSE drops ahead of the new PM announcement.
 

EUR/USD falls as energy fears rise

EUR/USD has fallen below 0.99 for the first time since December 2020 as investors weigh up Russia’s decision to halt gas flows along the Nord Stream 1 pipeline.

The energy crisis in Europe has worsened, sending European natural gas prices surging higher and raising fears rising that gas will need to be rationed.

Higher gas prices mean higher inflation, piling pressure on the ECB ahead of the monetary policy meeting on Thursday.

No one wants to be in Christine Lagarde’s shoes right now. The ECB desperately needs to get a grip on record-high inflation. But a deep recession in the bloc is looking unavoidable, potentially limiting the ECB’s ability to move aggressively.

Given the relentless safe haven USD demand and the growing divergence in the US and Eurozone economic outlook, it’s difficult to see how the euro can meaningfully retake parity anytime soon.

Today composite PMI data is expected to show that business activity contracted in August to 49.2, down from 49.9.

Retail sales are expected to rise to 0.4% MoM in July after falling -1.2% in June.

The US is closed for Labor Day public holiday.
 

Where next for EUR/USD?

EURUSD trades lower heading into the European open but has found support on the multi-week falling trendline at 0.9878, its lowest level since December 2020.

The RSI trades below 50 and the 20 sma in crossing below the 50 sma on the 4 -hour chart in a bearish signal, supporting further downside.

Failure of the bulls to defend 0.9880 could see the pair fall to 0.9850 support ahead of 0.98 round number.

On the flip side, a move above 0.9980 the 20 & 50 sma could negate the near-term downtrend and open the door to parity and 1.0100, last week’s high, to create a higher high.

(Click on image to enlarge)

FTSE drops ahead of the new PM announcement

The FTSE is falling as gas prices jump and investors wait for the new Prime Minister to be announced.

News that Russia is halting gas flows along Nord Stream 1 has sent UK gas prices 25% higher in early trade, reversing losses seen last week. Higher gas prices and lower supply raise the prospect of rationing and blackouts and lift inflation higher.

This is the dire economic backdrop that the new PM will inherit today. Foreign secretary Liz Truss is expected to take over at the helm. However, the pound trading at its lowest level since March 2020 suggests that the market is worried about its strategy of cutting taxes to turbocharge the economy. This could easily backfire and send inflation higher still.

The FTSE is falling but less so than its European peers’ thanks to supporting from the heavyweight miners, which are rising following stronger-than-expected services PMI data from China. Oil majors are also tracking oil prices higher ahead of the OPEC+ meeting later today.
 

Where next for the FTSE?

The FTSE dropped sharply last week, falling below the 50, 100 & 200 sma. The index found support at 7130 last week’s low and has rebounded higher, bringing the RSI out of the oversold territory. This level is now the immediate support. A break below here opens the door to 7070 ahead of the key psychological level 7000.

On the flip side, buyers need to rise to 7340 the 50 sma to negate the near-term downtrend and opens the door to 7400 the 200 sma.

(Click on image to enlarge)

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