The Sentiment Holds Better in the US Than in Europe, Sending EUR/USD Back Down
Skerdian Meta • 2 min read
The sentiment has taken a hit after the conflict in Ukraine and the geopolitical tensions which have increased the uncertainty as the world becomes less stable. But more than the tensions themselves which seem to have abated, the uncertainty which is bringing pressure on prices has been hurting the public the most.
Crude oil surged to $130 earlier this week, but has retreated to $110, while food prices have been surging. As a result, there is some fear among the consumers and investors in Europe, which is the biggest importer of Russian energy and food products, some of which go flow through Ukraine. Yesterday we saw the investor sentiment dive to negative levels in the Eurozone, while today’s consumer report doesn’t show much change in the US, with current conditions being higher, although expectations have declined.
University of Michigan Consumer Sentiment for March 2022
- Consumer sentiment index 59.7 versus 61.4 estimated
- Current conditions 67.8 versus 66.0 estimate
- Expectations 54.4 versus 58.8 estimate
- One year inflation expectations 5.4% versus 4.9% last month. Highest level since the early ’80s
- Five year inflation expectations 3.0% vs 3.0% last month
This is the first report since the energy spike although the surge has ended and the price has abated. Meanwhile, US stocks have started to move back to the downside. The NASDAQ is now down -51 points or -0.39% at 13080. The S&P index is trading above and below unchanged near 4260.
EUR/USD H1 Chart Analysis – Falling Below Moving Averages
Sellers have resumed control again
EUR/USD turned bearish last summer as inflation surged above 5% in the US, increasing expectations of the FED turning hawkish. The FED did turn hawkish and ended the QE programme this month, while it is expected to hike interest rates next week, either by 25bps or 50bps (basis points). That has been keeping the USD bullish and the conflict in Ukraine which hurts Europe the most weighed further on the Euro, accelerating the decline earlier this month.
But, this week we saw a bullish reversal higher in this pair, as traders anticipated a hawkish ECB. The European Central Bank had given hawkish signs in previous months, but with the conflict in Ukraine expectations of a hawkish move from them declined. So, traders got a bit excited when the ECB held its position to end bond purchases by Q3 and start hiking rates after that. But, that’s still behind the FED which might increase rates by 0.50% next week, so the retrace higher has ended and EUR/USD has fallen below 1.10 again.