Slumping euro drops below 1.05

The euro has extended its slide on Thursday and fell as low as 1.0471 in the European session, before clawing back above the 1.05 line.

Wobbly euro extends slide

It has been a nasty ride for the euro, which can’t seem to get a break. EUR/USD is down for a sixth successive day. The euro is struggling at levels not seen since March 2017, and is down over 5 per cent in the month of April. News out of Russia is compounding the currency’s fall. Russia has banned gas exports to Poland and Bulgaria after they refused to pay in Russian roubles, as Moscow continues to weaponize its energy supplies in order to combat sanctions. The plot thickens, with reports that some European energy companies have agreed to pay Russia in roubles. This could be a violation of sanctions and would put those companies on a collision course with their governments and that could spell trouble for the euro.

Aside from the grim news out of Russia, the hawkish Federal Reserve is also weighing on the euro, as the US/Europe rate differential continues to widen. US Treasury yields rose on Thursday, and even a shock contraction in US GDP didn’t stop yields from rising, with the 10-year yield edging higher to 2.85%. The CME’s Fed Watch has pegged the odds of a half-point rate hike at 96%, and the Fed has telegraphed to the markets that more half-point increases are on the table.

With the war in Ukraine showing no signs of ending and the Fed in full throttle, the outlook for the euro looks bleak, with the currency on track to break below 1.03 and perhaps fall to parity.

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EUR/USD Technical

• EUR/USD has broken through support at 1.0553. Below, there is support at 1.0411
• There is resistance at 1.0657 and 1.0728

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