- Russia might further restrict gas supply to Europe through Nord Stream 1.
- Germany is at risk of tipping into recession.
- The pair is getting closer to parity.
Today’s outlook for EUR/USD is bearish as Germany faces a looming recession if Russia extends the maintenance of Nord Stream 1. The Ukraine war has caused a lot of tension between Russia and the EU, with both sides trying to have the upper hand.
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The EU is trying to strangle Russia’s revenue funding the war by imposing sanctions, while Russia is using oil and gas to exert political pressure on Europe. The Nord Stream 1 is the largest pipeline transporting Russian gas to Germany. Markets believe Russia is using this pipeline to restrict gas supply to Europe. Last month alone, Russia cut flows to 40% of the pipeline’s capacity, claiming delayed equipment return.
It is therefore not a surprise that markets expect an expansion of the maintenance period.
“The last few months have shown one thing: Putin knows no taboos. Therefore, a complete halt to gas supplies through the Nord Stream pipeline cannot be ruled out,” Timm Kehler, managing director of German industry association Zukunft Gas, said.
Such an occurrence would tip Germany into a recession and cause many job losses. The economic effects would be felt in the whole of north-western Europe.
EUR/USD key events today
Today, there will be a speech from the Deutsche Bundesbank President, also a voting member of the ECB Governing Council. Nagel is known to be one of the most influential members of the council, so his speeches contain clues on monetary policy.
EUR/USD technical outlook: Bullish divergence may fail
Looking at the 4-hour chart, we see the price falling after retesting 1.0200, a critical psychological level. The price is trading below the 30-SMA, showing bears are holding the reins and have been for some time now. The RSI is trading well below 50, also favoring bearish momentum.
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At the same time, we can see a bullish divergence in the RSI that shows weakness in the bearish move. This divergence is likely to happen near critical levels due to profit-taking. If bears are still strong, the divergence will fail, and the price will fall further. However, if bears cannot return stronger, the divergence will play out, and bulls might take the price above the 30-SMA.
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Saqib Iqbal
