Higher energy prices would likely be a EUR negative factor – Rabobank

This week’s volatility in LNG is itself a sign that sensitivities around energy in Europe remain heightened. Thus, economists at Rabobank expect the Euro to move downward.

EUR/USD seen at 1.08 on a three-month view

While expectations of higher interest rate differentials are the textbook example of a currency supportive factor, in reality, higher rates may not be currency supportive if growth fears are compounded. 

Given that higher energy prices would stoke long term growth concerns for the Eurozone, we would be wary about seeing volatility in LNG prices as a reason to add to long EUR positions. Since the ECB may have already reached the peak in its policy rates and given the economic headwinds facing the Eurozone, we view the market as being too long EUR. 

We see EUR/USD at 1.08 on a three-month view.