Economic Contraction

EUR/USD stretches to fresh 20-year lows below 1.0200 ahead of FOMC minutes

  • The US Dollar hit a 20-year high around 107.264, weighing on EUR/USD.
  • Europe’s energy crisis is taking center stage as prices soar as countries like Germany and France scramble to ease the burden.
  • German Economy Minister Rober Harbeck said current conditions could lead to a recession.

The common currency continued to slump against the greenback amid fears of a eurozone recession amid an energy crisis that, if worsened, could lead to a lasting economic contraction, with Russia threatening to stop natural gas flows to the block. At the time of writing, EUR/USD is trading at new 20-year lows at 1.0175.

Negative mood and strong US dollar, a headwind for EUR/USD

A risk impulse favors safe-haven flows, which means global equities are lower and a stronger greenback. Recession fears appear to be dissipating as traders prepare for the release of the FOMC minutes. Weaker US data revealed earlier showed that the US economy is slowing, as illustrated by the S&P Global and ISM non-manufacturing PMIs.

Along with the previously mentioned factors weighing on the EUR/USD, Chinese authorities reported that Shanghai had recorded more than 100 positive cases, reigniting fears of additional lockdowns. In the meantime, Europe’s energy crisis is deepening as electricity prices soar, thanks to growing Russian pressure on energy supplies.

German Economy Minister Robert Habeck said the current situation in Germany could lead to a recession, according to Reuters. Meanwhile, the German government has proposed an emergency law allowing the government to acquire shares of energy companies if they need to be bailed out.

All the elements mentioned above weighed on the euro. EUR/USD price action on Wednesday shows the major opening near daily highs around 1.0264 and has been swinging throughout the Asian session. When European traders arrived at their offices, the pair began to dive and hit a new 20-year low at 1.0161.

In the week ahead, the EU economic record will feature German industrial production and the ECB, led by ECB’s Philip Lane and Enria. Across the pond, the US calendar will unveil initial claims for unemployment insurance, the ADP job change and Fed speakers, featuring Christopher Waller and St. Louis Fed President, James Bullard, crossing the wires.

EUR/USD Key Technical Levels