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EUR/USD drops to fresh 20-year lows

This week's economic calendar is relatively light with only a handful of data releases to contend with. The focus will be on the Thursday's ECB decision.

The shared currency did not start the new week in a positive direction and dropped below 0.99 against the USD, posting new 20-year lows as the bearish trend remains intact.

No more gas for EU

After the extended blockage of the Nord Stream pipeline, Europe’s energy crisis pushed into another crucial stage. These are the concerns that European officials had been preparing for in the worst-case scenario.

The Kremlin stated on Monday that “the single turbine left is malfunctioning, which results in stoppages” in reference to the closure of the Nord Stream 1 pipeline.

Related blog: Russian foreign exchange reserves in Chinese yuan?

Kremlin said, “Western nations’ sanctions caused complications with gas transit.

It appears that Russia’s main weapon in its protracted conflict with Ukraine is energy. Russia’s decision to shut off the gas looks to be a retaliation to a planned price ceiling on its oil, which is intended to result in blackouts, rationing, and more financial hardship for businesses and people throughout Europe. Prior to a brief decline, the price of natural gas futures sold in Europe increased by 30%.

EU data eyed

In other news, according to official data issued by Eurostat on Monday, retail sales in the Eurozone increased by 0.3% MoM in July compared to a 0.4% expectation and -1.0% in June.

Annualized Retail Sales for the bloc were -0.9% in July compared to -3.2% in June and -0.7% predicted.

In September, the Eurozone Sentix Investor Confidence index dropped to -31.8 from -25.2 in August, below the -27.5 forecast. In response to growing recessionary concerns, the index halted its recovery.

From -25.2 in August, the eurozone’s present condition plummeted to -31.8 points in September. An expectations index tumbled to -37.0, the lowest since December 2008.

Compared to the 15% of GDP levels of assistance witnessed during the epidemic, analysts at ING believe that the weekend package of support measures for the German economy falls short, worth just 2% of GDP.

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Additionally, they think a 75 bps hike at Thursday’s meeting is a leap too far for the ECB – we look for 50 bps. This will not help the euro. As a result, they expect the world’s most popular currency pair to extend its slide towards the 0.9600/9650 area.

Investor expectations for the ECB meeting later this week still seem to favor a 75 basis point rate rise.

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