The single European currency clicked into gear since the European trade opening. First, the EUR/USD perked up and quickly gained traction thanks to the oil supply issues the continent is facing.
Market participants have been speculating that the EU would eventually impose an embargo on Russian oil and gas imports. Such prospects certainly scare investors because Russia is the only source to supply Europe with sufficient petroleum products.
The boycott of Russian energy suppliers could cripple the European economy. On Monday, the EU countries proceeded with the negotiations on a new package of anti-Russian sanctions. Several top EU officials stated directly that the oil and gas ban would be high on the agenda. They also sent a message that they had settled the embargo issue.
Nevertheless, the painstaking talks are still underway. The EU authorities have not come up with the preliminary content of the 6th tranche of sanctions. Not all countries in the Union accept such a rigid stance and resist joining the pan-European ban on Russian energy imports. Yesterday, the media reported the news, which suggests a conclusion that the EU would not introduce the embargo.
US Treasury Secretary Janet Yellen said that the G7 counties are working on the issue of a cartel of oil buyers aiming to set the utmost prices of Russian petroleum products. So, if they bring up the issue of price regulation, it does not make sense to impose an embargo on such imports. Therefore, Europe will not have to deal with the energy shortage that might devastate the whole economy.
The news does not provide the euro with strong support because it is about plans and intentions. Even Janet Yellen did not elaborate on details and admitted that the idea must be transformed into a blueprint. The market is aware of the Fed’s hawkish monetary policy that has been already launched and that has already produced some effect. This is what Fed Chairman Jerome Powell asserted in his speech yesterday.
Citing his words, the US regulator will raise the key interest rate by another 0.50% at the next policy meeting. Higher interest rates increase yields of government borrowings, so demand for the US dollar is set to remain buoyant. In this context, the market will carry on with long positions on the greenback today.
EUR/USD: Technical View
After a brief halt at about 1.0500, EUR/USD resumed its upward correction. With this move, the currency pair rebounded to the upper border of the previously broken range of 1.0500/1.0600.
The H4 RSI technical instrument moves in the upper area of 50/70, thus signaling bullish interest in EUR/USD. The D1 RSI is moving below the average line of 50. It means there is no signal of a protracted correction.
Moving averages on the H4 Alligator are directed upward, which means a corrective move. The D1 Alligator signals a slowdown in the downward cycle. At the same time, the indicator does not generate a signal of changing trading sentiment.
The daily chart displays a correctional move underway from the low of 2016. This move fits into the idea of a medium-term downtrend.
Outlook And Trading Tips
Under such market conditions, EUR/USD might kick out of the upper border of 1.0600, which will cause the opposite move towards 1.0500. The trading instrument might get stuck sideways. The scenario is a protracted correction will come into play if the price settles above 1.0636 on the 4-hour chart.
Complex indicator analysis suggests a buy signal for short-term and intraday buying during the correction. Indicators generate a sell signal in the medium term amid the overall downtrend.