Francesco Pesole of ING contends that European gas prices are unlikely to return to 2022 levels even in the event of a catastrophic and protracted Gulf conflict, supporting a positive medium-term outlook for EUR/USD. He does, however, caution that there are still short-term negative risks associated with Gulf stories and central bank meetings, with EUR/USD possibly falling below 1.1450 before rising later in the year.
Euro fair value is supported by gas restrictions.
"A fresh set of energy price scenarios and their effects on rates and EUR/USD have been released. Lower-intensity strikes might last for several months, delaying the reopening of the Strait of Hormuz, which would not reach full capacity until June. In our baseline, intense warfare concludes in two weeks. According to our projections, this translates to an average of $91/b for Brent in the second quarter and $85/b in the third.
One of the primary conclusions of our new scenario study is that only a serious and protracted conflict is likely to keep gas prices high. Even in that scenario, it appears unlikely that TTF will return more than 100 EUR/MWh, and fluctuations in 2022 would still pale in comparison to those brought on by the Gulf War."
"As capped gas prices mean a reduced impact on the eurozone terms of trade and, by extension, the euro's medium-term fair value, this conviction call continues to form the backbone of our bullish outlook on EUR/USD into year-end."
"Downside risks continue in the immediate future, and Monday's EUR/USD recovery may not last long until some headlines about ceasefire negotiations or NATO collaboration on securing Hormuz start to materialize."
"In our opinion, the sum of the Fed and ECB meetings today returns a bearish balance of risks for EUR/USD this week, and we might see the pair re-exploring sub-1.1450 before recovering, barring encouraging developments in the Gulf."
Euro fair value is supported by gas restrictions.
"A fresh set of energy price scenarios and their effects on rates and EUR/USD have been released. Lower-intensity strikes might last for several months, delaying the reopening of the Strait of Hormuz, which would not reach full capacity until June. In our baseline, intense warfare concludes in two weeks. According to our projections, this translates to an average of $91/b for Brent in the second quarter and $85/b in the third.
One of the primary conclusions of our new scenario study is that only a serious and protracted conflict is likely to keep gas prices high. Even in that scenario, it appears unlikely that TTF will return more than 100 EUR/MWh, and fluctuations in 2022 would still pale in comparison to those brought on by the Gulf War."
"As capped gas prices mean a reduced impact on the eurozone terms of trade and, by extension, the euro's medium-term fair value, this conviction call continues to form the backbone of our bullish outlook on EUR/USD into year-end."
"Downside risks continue in the immediate future, and Monday's EUR/USD recovery may not last long until some headlines about ceasefire negotiations or NATO collaboration on securing Hormuz start to materialize."
"In our opinion, the sum of the Fed and ECB meetings today returns a bearish balance of risks for EUR/USD this week, and we might see the pair re-exploring sub-1.1450 before recovering, barring encouraging developments in the Gulf."
