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As the US prepares for a new round of sanctions against Russia, the EUR/USD may target a low in 2022.
The Euro is well off its March lows against the US Dollar, but upside movement has stalled, and bulls do not appear eager to resume buying in the near term. The conflict in Ukraine rages on, and the battle for Mariupol is being closely monitored. Meanwhile, the US is reportedly preparing another round of Russian sanctions. While these sanctions are aimed at Russia, they have an impact on the global economy. Unfortunately for the Euro, Europe is one of the most heavily impacted by these negative effects.
The Euro has made progress since its March low, but the upside appears to be limited.
As the United States prepares new sanctions, Europe may bear the brunt of the consequences of the war. If prices fall below flag support, the EUR/USD could threaten the 2022 low.
The economic impact on Europe will almost certainly worsen over time unless Ukraine and Russia reach an agreement, which appears unlikely at the moment. Despite the chaos, overnight index swap pricing shows that European Central Bank (ECB) rate hike bets have recently firmed up.
Nonetheless, the ECB faces a highly uncertain outlook as a result of the conflict, and extremely volatile energy prices only complicate matters. Meanwhile, the Federal Reserve has become more hawkish.
The Fed is expected to raise interest rates by 50 basis points at its May meeting, putting the US central bank ahead of its European counterpart. This is bad news for the EUR/USD. Given the current outlook, the Euro is likely to remain depressed against the US Dollar and may even fall further. The only tangible reprieve in sight is for Ukraine to find peace.
EUR/USD is struggling to stay above the declining 20-day Simple Moving Average (SMA). Prices are also near the bottom of a Bear Flag pattern, which could lead to further losses if support breaks. A breakdown could bring the 2022 low at 1.0806 into focus, but an intraday move earlier this week found support at the 23.6 percent Fibonacci retracement level, which could limit losses.