Jump to content

EUR Forecast Q2 2022: A Badly Battered Euro May Find a Lifeline in Ukraine, But Can an Upswing Last?


Recommended Posts

EUR Forecast Q2 2022: A Badly Battered Euro May Find a Lifeline in Ukraine, But  Can

The Euro suffered punishing losses in the first quarter of 2022. The currency is on pace to shed almost 3 percent against an average of its major counterparts, marking the worst three-month performance in 7 years. Taken together with losses in the second half of last year, the Euro is poised to give up nearly 4.5 percent over the course of nine months.

Losses are unsurprisingly concentrated in March of this year, registered against the backdrop of Russia’s invasion of Ukraine in the closing days of February. The crisis has placed a shooting war directly in the Eurozone’s backyard, disrupting trade flows and triggering a flood of Westward-bound refugees.

These baseline headwinds have been compounded by knock-on effects from Western powers’ biting economic sanctions imposed to punish Moscow for the invasion. Most powerfully, these measures have frozen the Central Bank of Russia’s vast foreign reserves and cut off huge swathes of the country’s economy from the vital SWIFT bank correspondence system.

Russia will feel most of the pain from these measures, but not all of it. It is the broader EU’s fifth-largest trading partner, accounting for 5.8 percent of total trade in 2021. Europe buys key commodity inputs from Russia, including energy, wood, fertiliser, iron and steel. EU firms also sold over €120 billion in goods and services to Russia last year. The invasion and the follow-on sanctions regime have severely disrupted this activity.

EURO VS. AVERAGE OF MAJOR CURRENCIES – MONTHLY CHART

Please add a description for the image.

Source: TradingView

EURO MAY BOUNCE AS THE UKRAINE CRISIS DE-ESCALATES

While the war in Ukraine continues to rage at the time of this writing, de-escalation may not be far away. Russia’s move to broaden the fight after early setbacks derailed an attempt at something faster and more surgical seems mostly like scrambling for leverage before the full sting of the sanctions makes earnest negotiations inevitable.

The Kremlin may be setting up to trade withdrawal and de-escalation for an easing of sanctions, contingent on mutual agreement to discuss territorial claims “later”. For its part, Kyiv has helpfully hinted that it is prepared to offer up juicy concessions like accepting “neutrality” between Russia and the NATO alliance as one of the conditions of a deal.

Such a result might be acceptable for all involved, at least in the near term. Moscow will have its desired buffer areas in Eastern Ukraine (practically, if not officially), Kyiv will have faced down a Russian invasion without losing hold of power, and the West will be able to credibly assert that the invasion was successfully repelled without NATO becoming involved militarily.

Russia’s similar incursion into Georgia in 2008 lasted two months. Then too, Moscow sought to put a buffer zone between it and a former Soviet border state with its eyes on realignment to the West. The sanctions in play now are harsher, beckoning talks. This means that some kind of deal that lowers risk premiums and lifts the Euro may credibly appear in the second quarter.

ECB INTEREST RATE OUTLOOK LIKELY TO LIMIT EURO UPSIDE

The Euro may struggle to sustain any such gains however, held back by an ECB that is not expected to follow its global peers down the road of brisk interest rate hikes aimed at soaring inflation. Market pricing envisions target interest rates near 2 percent in the US, Canada and New Zealand by year-end. Australia and the UK are priced near 1.5 percent.

By contrast, a series of five 10bps rate hikes over the course of 2022 is expected to bring the ECB’s deposit rate from its current -0.5 percent setting back to zero. That leaves the single currency at a distinct yield disadvantage. If some Ukraine-inspired boost lifts the Euro relatively early in the second quarter, its impact may already fizzle by the time Q3 is ready to begin.

 

Apr 15, 2022 |  DailyFX
Ilya Spivak, Head Strategist, APAC

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
      21,180
    • Total Posts
      90,704
    • Total Members
      41,294
    • Most Online
      7,522
      10/06/21 20:53

    Newest Member
    Shymammonite
    Joined 30/01/23 06:47
  • Posts

    • Maximize Your Stock Market Returns: Latest News on SP500, Top Tech Stocks with Elliott Wave Analysis and Trading Strategies Stay Ahead of the Stock Market with the Latest News and Analysis on SP500, Top Tech Stocks, US ETF Sectors and Trading Strategies. Get up-to-date insights on the bullish weekly cycle, Elliott wave analysis and profitable trading opportunities in the finance sector with top companies like Apple, Tesla, Amazon, Microsoft, JPMorgan and more. Stock Market Content: SP500, AAPL, AMZN, NVDA, TSLA, GOOGL, BRK.B, SQ, META, NFLX, ENPH, MSFT, BAC, JPM. US ETF Sectors. Elliott Wave Analysis US Stocks News: Apple (AAPL),Tesla (TSLA), Amazon (AMZN), Nvidia (NVDA), Microsoft MSFT, Berkshire Hathaway (BRK/B), Block, Inc (SQ), Meta Platforms, Netflix (NFLX), Enphase (ENPH), Alphabet GOOGL. XFL Finance Sector ETF, JPMorgan JPM & Bank of America BAC, Goldman Sachs Group Inc (GS) Stock Market Summary TradingLounge Bullish Weekly Cycle in play, Bullish Monday Profit Taking Tuesday Elliott Wave Analysis: (iii) of iii) of 3 Trading Strategies: Long Video Chapters 00:00 SP500 04:45 Apple (AAPL) 08:01 Amazon (AMZN) 11:00 NVIDIA (NVDA) 11:34 Meta Platforms (META) 17:47 Netflix (NFLX)  18:59 Enphase (ENPH) 22:04 Tesla (TSLA) 24:06 Alphabet (GOOGL)  29:16 Microsoft (MSFT) 34:52 Berkshire Hathaway (BRK.B) 35:56 Block Inc. (SQ)  37:28 Bank of America BAC 25:22 TRIAL Buy 1 Month Get 3 Months  Analyst Peter Mathers TradingLounge™ Australian Financial Services Licence - AFSL 317817 Source: tradinglounge com  
    • Does anybody know the BIL (SPDR Bloomberg 1-3 Month T-Bill ETF) equivalent with a GBP currency hedge? I want the interest yield but I don't want the currency risk.
    • Capital, win loss ratio. If you have a trading edge and you can consistently win 50% of your trades, so your winning 5 trades out of 10. So if your risking 1% of your capital per trade, out of your 10 trades 5 would be losers, so that’s 5% loss and realistically out of the 5 winning trades, some would make small profits, some break even and 1, 2 or 3 could run nicely IF you can let your profits run, basically your making money out of 2 trades out of the 10 trades (80/20 Rule Pareto principle) So a $20,000 acct risking 1% is $200 per trade, this will keep the trader with his trade risk based on being able to win 50% of his trades. A long term trend trader can win with 30% wining trade. Basically you need to know your numbers. Rgds Pete
×
×
  • Create New...