Published on 08.12.2022 15:09

The Euro may have found itself at a cyclical bottom according to one analyst and believes the height of the energy crisis in the Eurozone has now is now over.

The war between Ukraine and Russia has cause severe disruptions to energy supplies to Europe as the continent tries to reduce dependency on Russian oil and gas in order to slowdown the money funneling into Russia that supports their military ambitions.

Some European countries have already completely cutoff Russian energy supplies and have found new sources and the bigger countries such as Germany have reduced their demand dramatically and are also aiming for a complete boycott of Russian energy.

"We see reasons to be optimistic for this winter. Outside of an unseasonably harsh winter, the energy situation in Europe looks manageable given the securing of alternative energy supplies and double-digit energy demand erosion. The drawdown of critical stocks is already progressing better than feared," says Paul Robson, Head of G10 FX Strategy at NatWest.

Apart from the improvement in energy supplies, the Euro is also expected to benefit at the expense of the US dollar as the US Federal Reserve begins to wind down the interest rate hiking cycle which should narrow the yield differentials between the Euro and the dollar

"We believe that the next 10 cent move in EUR/USD will be higher rather than lower and that the cyclical lows will not be revisited over the next 6 months," added Robson.

Looking further ahead today, the main drivers of the EUR/USD currency pair will be a monetary speech from European Central Bank President Christine Lagarde where investors will be looking for clues of the expected size of the rate hike to be delivered this month.

In the American session we will see which will the release of the Iatest initial jobs claims figures from the US which will be closely monitored by the Fed as they deliverer another rate hike later this month.


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