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EUR/USD analysis: Could European gas Dutch TTF fall enough for a sustained rally?

By Piero Cingari

12:04, 12 September 2022

An image showing Euro banknotes lie next to a burning gas burner and a burning dollar, concept of energy crisis
Euro banknotes lie next to a burning gas burner and a burning dollar, concept of energy crisis – Photo: Shutterstock

The recent euro (EUR/USD) rebound, from a low of $0.987 to the current $1.011 levels, has been primarily driven by latest natural gas market developments, rather than the ECB's record rate hike last week. Comparable gains in the Swiss franc (CHF), and to a limited extent the British pound (GBP), would be inexplicable if only interest rate differentials against the dollar were considered.

The market judged the precipitous drop in European natural gas prices (Dutch TTF) – 40% from their peak – as a fundamental driver that helped ease pressure on the European currency markets. 

After reaching irrational highs, the European gas market is showing early signs of normalization, and prices are thus easing. EU gas storage levels are at 84% of their full capacity, which is better than the average at this time of year. This has provided the market with some optimism that Europe will survive the winter if demand-driven restrictions successfully reduce gas withdrawals from storage. This week EU countries will finally unveil the long-awaited emergency energy measures.

However, despite the fact that the price difference between European Dutch TTF and US Henry Hub gas has narrowed, European gas is still nearly eight times more expensive than US gas. This continues to be a significant drag on the European growth outlook, thus capping the euro's upside potential in the medium term. 

Chart: US-EU natural gas price gap is the main driver behind EUR/USD price action

EUR/USD vs US-EU (Henry Hub-TTF) gas price spread as of September 12, 2022 – Photo:

Recent fluctuations in the EUR/USD exchange rate have been largely driven by the price disparity between natural gas in the US and Europe, rather than triggered by the ECB’s historic rate hike last week.

Earlier this month, EUR/USD falling below parity coincided with a record price gap between European and US natural gas.

The correlation coefficient between EUR/USD and US-EU gas price differentials over the past 90 days is 0.88, which indicates a very strong relationship between the two variables.

Over the past week, the price of gas in Europe has dropped precipitously, with the Dutch TTF benchmark falling nearly 40% from its highs of €330/Mwh to its current level of €190/Mwh.

When expressed in dollars per million British thermal units (MMbtu), the price of the European Dutch TTF gas is currently around $60/MMbtu. This price is approximately $53 higher than the price of US Henry Hub gas, but significantly lower than the previous peak of $92/Mmbtu.

The narrowing in the Henry Hub-TTF spread from a negative $92/MMbtu to the current level of $53/MMbtu has provided some relief to the EUR/USD rally from 0.987 to 1.011 levels. 

Even though the EU-US gas price gap isn't as big as it used to be, gas prices in Europe are still almost 8 times higher than in the US. Because of this factor, European companies remain at a significant disadvantage compared to their American counterparts, which has a dampening effect on European economic growth compared to that of the United States.

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Natural gas price declines fueled a broad-based rally in European currencies

G-10 currencies weekly performance vs USD – Photo:

Recent forex market movements are driven by natural gas price dynamics rather than broader monetary policy changes.

Not only has the euro slightly strengthened against the dollar, but so have other European currencies.

Over the last week, the Swedish krona (SEK) has gained more than 3% against the US dollar. With a 2.8% gain, the Swiss franc (CHF) followed suit, and no changes in monetary policy have been announced for the two currencies.

On the other hand, non-European currencies have not done as well against the dollar. The Australian (AUD), Canadian (CAD), and New Zealand dollars (NZD) all posted weekly gains of around 1%. The Japanese yen (JPY) continues to remain the laggard, since Fed-BoJ monetary policy divergences continue to play a determinant role. 


0.65 Price
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Long position overnight fee -0.0070%
Short position overnight fee -0.0012%
Overnight fee time 21:00 (UTC)
Spread 0.00018


0.65 Price
-1.160% 1D Chg, %
Long position overnight fee -0.0070%
Short position overnight fee -0.0012%
Overnight fee time 21:00 (UTC)
Spread 0.00018


1.25 Price
-0.830% 1D Chg, %
Long position overnight fee -0.0047%
Short position overnight fee -0.0035%
Overnight fee time 21:00 (UTC)
Spread 0.00050


1.06 Price
-0.790% 1D Chg, %
Long position overnight fee -0.0080%
Short position overnight fee -0.0002%
Overnight fee time 21:00 (UTC)
Spread 0.00010

What is next for EUR/USD? Key factors to consider

1) Evolution in the European gas crisis 

This week, European nations are finally expected to announce long-awaited energy emergency measures to curb skyrocketing gas prices and alleviating pressures of a full Russian gas shutdown. 

A number of proposals have been floated lately, including capping the price of TTF gas and Russian oil, requiring mandatory reductions in gas consumption, and imposing a windfall tax on energy firms.

If the market interprets these moves as bearish for European gas prices (Dutch TTF), the spread with US gas prices may continue to narrow, providing further support to the euro.

Currently, EU gas storage levels are at 84% of capacity, according to the latest AGSI+ data, which is a bit higher than average for this time of year. Efforts to refill gas reserves in Europe have moved ahead more than usual.

The market is now reevaluating the nightmare scenario of Europe running out of gas in favour of a scenario in which Europe survives the winter if demand curbs are effective. However, the risk of higher-than-expected gas consumption due to cold weather, on the other hand, may continue to limit the euro's upside potential during the winter.

2) Upcoming economic data and policy implications

The German ZEW economic sentiment index for September and the U.S. inflation rate for August will be the most influential macroeconomic releases for EUR/USD on Tuesday 13.

Market consensus expects the ZEW index in Germany to fall to -60, from -55 in August, thus reaching the lowest levels since the 2009 crisis.

Negative surprises are likely to generate downward pressure on the euro, as they imply a further worsening of the eurozone’s growth outlook and thus limiting the window in which the ECB can really undertake aggressive rate hikes. 

ZEW economic sentiment index for Germany – Photo:, Source: Tradingview

Inflation in the US is seen falling from 8.5% year-on-year in July to 8.1% in August, with an expected decline of -0.1% on the month. A negative pace of the monthly inflation has not been seen for over two years now. 

If market expectations are confirmed by the data or if inflation falls even more than expected, investors could start speculating on lower Federal Reserve rate hikes after September, thus giving relief to EUR/USD. 

However, any short-term enthusiasm is likely to face some pushbacks by hawkish comments from Federal Reserve members in the coming days, pending next week FOMC meeting.

US annual and monthly inflation rate – Photo:, Source: Tradingview

3) Traders remain net-short on the euro, but less than a week earlier

The latest CFTC report on the commitments of traders (COT) continues to show that large speculators remain extremely short on the euro, albeit slightly less than they were a week earlier.

The amount of non-commercial net-short positions on futures rose slightly to -36,349 contracts in the week of 6 September 2022, from -47,914.

Although non-commercial short positions on the euro remain close to the lows of the year, it will be important to observe next Friday (September 16), if they continue their improving trend. This could indicate that the market pessimism has already reached its peak, and that recent natural gas movements have effectively provided speculators with fresh incentives to buy the euro on the dip.

CFTC COT on euro fx futures as of September 6, 2022 – Photo:, Source: Tradingview

Markets in this article

1.06413 USD
-0.00846 -0.790%
Natural Gas
Natural Gas
1.9460 USD
0.031 +1.620%
0.64630 USD
-0.00757 -1.160%
1.24524 USD
-0.01042 -0.830%
0.59377 USD
-0.00619 -1.030%

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