Forex chart patterns: US-EU rate gap widens, pressuring EUR/USD; Russian gas cuts spur HUF selloff
15:09, 27 July 2022
As traders await the Federal Reserve's back-to-back 75-basis-point rate hike today, Europe faces an unprecedented energy crisis, with Russia drastically reducing gas supplies in the Nord Stream 2 pipeline and political divisions emerging among member states after the European Commission urged them to reduce their demand for natural gas by 15% this winter.
The EUR/USD pair fell 1% yesterday and is currently trading at 1.013 (+0.1% today) at the European market close.
As the market bets that the ECB will not be able to continue aggressively raising interest rates, short-term bond yields in Germany have declined in response to rising fears of a recession and a natural gas supply shortage.
Germany 2-year yields fell to 0.4%, down 26 basis points from the previous week. The rate differential between the United States and Germany at the 2-year maturity has widened to 2.67%, remaining close to yearly lows.
Recessions risks for the eurozone spiked today after JP Morgan downgraded the Eurozone’s economic growth outlook, predicting a mild recession between the fourth quarter of 2022 and the first quarter of 2023. Germany also released the worst ever GFK consumer confidence figure in August (-30.6).
Yesterday, the International Monetary Fund cut the eurozone's growth forecast for this year to 2.6% (-0.2pp compared to April forecasts), and to 1% for 2023 (-1.1pp compared to April).
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Chart of the day: Widening US-Germany yield differentials add to EUR/USD's downside risk
Currency strength matrix - July 27, 2022
Forex market today – July 27, 2022
Leading up to today's FOMC meeting, major pairs are relatively stable.
The New Zealand dollar (NZD/USD) is experiencing a day of weakness (-0.45%), extending yesterday's decline (-0.4%), as risk sentiment towards high-beta currencies remains quite depressed.
The outperformer is the Norwegian krone (NOK), which gained 0.7% on the day against the greenback (USD/NOK), as worries on Russian supplies fuelled purchases on alternative gas producers such as Norway.
However, Central Eastern European (CEE) currencies are attracting market attention as they weaken substantially due due to rising recession fears in Europe and Russian gas supply issues.
The worst-performing currency today is the Hungarian forint (HUF), followed by the Polish zloty (PLN). The dollar-forint and dollar-zloty exchange rates are both rising significantly as a result of intense selling pressure on CEE currencies.
The USD/HUF exchange pair is up 1% on the day, marking the fourth consecutive session of gains. The USD/PLN pair rose by 0.8%.
USD/HUF technical analysis: three white soldiers bullish pattern
Performance of forex pairs as of July 27, 2022
When it comes to USD/HUF technical analysis, the candlesticks analysis provides a strong bullish signal generated by the three white soldiers pattern. This pattern can be identified by the appearance of three green candles in a row, each with a higher open and close than the previous day.
The USD/HUF pair has crossed the 400-mark, returning to 2-week highs after a 7 percent decline from its July 12 high to the end of last week..
The confirmation of the bullish trend and the strong momentum of buyers (the RSI is on the rise) could lead USD/HUF to test the next resistance levels at 406 (July 15 Highs) and then the all-time high of 414 reached on July 12.
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