ING’s FX team argues that while Europe is better positioned on gas than in 2022, the Euro remains vulnerable against the Dollar. They highlight that EUR/USD has become more driven by Oil and equities than rates, with current bearish momentum potentially testing 1.150 and technical support around 1.140 if that level breaks.

Gas resilience but Euro still pressured

"The disruption to LNG flows from the Persian Gulf is sizeable, but it’s expected to be temporary rather than the structural break Europe faced when Russian pipeline gas collapsed. Also, global gas markets are better supplied, a large pipeline of new LNG export capacity is coming online, and EU gas demand sits well below pre‑war levels."

"The broader backdrop is also much less hostile than it was in 2022. Europe has bolstered renewable capacity, diversified away from single‑supplier dependencies, strengthened storage management and introduced joint gas purchasing – all of which help contain volatility. Market infrastructure is more flexible, and electricity prices should remain more anchored as a result."

"That underpins our resistance to follow market pricing in calling for a rate hike by the ECB later this year. That said, the risks are clearly shifting more hawkish with the war and oil supply shocks extending, as now admitted by a few ECB speakers."

"In the near term, that hawkish repricing doesn’t matter for EUR/USD, though, which has lost its sensitivity to front-end rates as it often does in times of external shock. The pair remains a mirror of oil prices in intraday action, and the bearish momentum (equity weakness adding to it potentially) can prompt a testing of 1.150."

"A break lower means the next technical supports to watch would be August’s 1.140 low."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)