EUR/USD analysis: US-EU natural gas gap narrows
Recent moves in the
EURUSD
exchange rate have been driven primarily by the price differential between natural gas in the United States and Europe, rather than by the ECB's historic rate hike last week.
Over the last 90 days, the correlation coefficient between EUR/USD and US-EU gas price differentials is 0.88, indicating a very strong relationship between the two variables.
The price of gas in Europe has decreased drastically over the course of the past week, with the Dutch TTF benchmark falling by nearly 40% from its highs of €330/Mwh to its current level of €190/Mwh. This was aided by higher-than-expected EU gas storage levels at this time of year, as well as speculation in Europe about a natural gas price cap.
When measured in dollars per million British thermal units ($/MMbtu), the European Dutch TTF is around $61/MMbtu right now, or about $53 more expensive than the
NATURALGAS
gas price, but significantly lower than the previous price-gap peak of $92/MMbtu.
The narrowing Henry Hub-TTF price spread from $92/MMbtu to $53/MMbtu has helped the EUR/USD rally from 0.987 to 1.011.
What next can we expect?
This week, European nations are expected to announce long-awaited energy emergency measures aimed at lowering skyrocketing gas prices and alleviating the pressures associated with a complete Russian gas shutdown.
If the market sees the announcements about energy policy as bad news for European gas prices (Dutch TTF), the spread between European and US gas prices may continue to narrow, which would sustain the euro in the short term.
However, despite the fact that the price difference between European Dutch TTF and US Henry Hub gas has narrowed, European gas is still nearly eight times more expensive than US gas. This continues to be a significant drag on the European growth outlook, thus capping the euro's upside potential in the medium term.
Idea written by Piero Cingari, forex and commodity analyst at Capital.com
EURUSD
exchange rate have been driven primarily by the price differential between natural gas in the United States and Europe, rather than by the ECB's historic rate hike last week. Over the last 90 days, the correlation coefficient between EUR/USD and US-EU gas price differentials is 0.88, indicating a very strong relationship between the two variables.
The price of gas in Europe has decreased drastically over the course of the past week, with the Dutch TTF benchmark falling by nearly 40% from its highs of €330/Mwh to its current level of €190/Mwh. This was aided by higher-than-expected EU gas storage levels at this time of year, as well as speculation in Europe about a natural gas price cap.
When measured in dollars per million British thermal units ($/MMbtu), the European Dutch TTF is around $61/MMbtu right now, or about $53 more expensive than the
NATURALGAS
gas price, but significantly lower than the previous price-gap peak of $92/MMbtu. The narrowing Henry Hub-TTF price spread from $92/MMbtu to $53/MMbtu has helped the EUR/USD rally from 0.987 to 1.011.
What next can we expect?
This week, European nations are expected to announce long-awaited energy emergency measures aimed at lowering skyrocketing gas prices and alleviating the pressures associated with a complete Russian gas shutdown.
If the market sees the announcements about energy policy as bad news for European gas prices (Dutch TTF), the spread between European and US gas prices may continue to narrow, which would sustain the euro in the short term.
However, despite the fact that the price difference between European Dutch TTF and US Henry Hub gas has narrowed, European gas is still nearly eight times more expensive than US gas. This continues to be a significant drag on the European growth outlook, thus capping the euro's upside potential in the medium term.
Idea written by Piero Cingari, forex and commodity analyst at Capital.com