European Gas at Four-Year High on Winter Supply Fears
European natural gas prices have surged past €97 per megawatt-hour, marking a peak not witnessed in nearly four years, driven by predictions of increased demand due to colder weather coupled with tight supply forecasts. This upward trend in energy costs signals potential inflationary pressures that could exacerbate the economic situation in the Eurozone, leading to widening current-account deficits. As the market grapples with these developments, the implications for the euro remain significant, particularly ahead of the upcoming ECB policy reassessment, which may weigh heavily on EUR positioning.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). This bearish catalyst from rising energy costs pressures EUR, aligning closely with JPMorgan's positioning at 1.10.
How firms align
JPMorgan's stance reflects a belief in the euro's declining trajectory amidst rising costs, with their target of 1.10. Conversely, BofA remains skeptical of significant downside, advocating for a lower target of 1.04, consistent with sustained inflation concerns. More insights can be derived from our internal reports on these firms.
What the data shows
Recent analytics suggest tightening energy supplies may lead to upward revisions of inflation forecasts. For further details, refer to our research on this topic at /research/energyinflation.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01European gas prices hit €97/MWh, a four-year high amid winter supply fears.
- 02Rising energy costs heighten inflation risks, potentially influencing ECB policy.
- 03EUR/USD bearish sentiment underpins our consensus target at 1.075.
- 04JPMorgan aligns with a target of 1.10, reinforcing the downward outlook.
Market implications
Traders should monitor levels around 1.075 for EUR/USD, which is supported by the consensus. Upcoming economic data releases may further impact positioning ahead of the ECB meeting.
Risks to this view
A significant decrease in energy prices or unexpected positive economic data from the Eurozone could invalidate the current bearish outlook on the euro, leading to upward revisions of our targets.
Sentiment by currency
USD+EUR JPY~GBP~Composite USD score: +0.65
Sources & References
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