WIKIFX REPORT: Euro consider risk premium. Forecast as of 18.10.2022

When disaster approaches but does not come, any positive news is received with relief. EURUSD had plenty of factors to take off, and the pair has been up. Whats next？ Let us discuss the Forex outlook and make up a EURUSD trading plan.

Weekly euro fundamental forecast

As soon as the crisis becomes manageable, the demand for the US dollar as the main safe-haven currency falls. The fiscal stimulus withdrawal in the UK, a drop in gas prices in Europe to the lowest levels since June, when Russia first reduced the gas flow via Nord Stream to Germany, as well as a stronger than expected reporting of US banks, allowed the EURUSD to mark the best daily rise over the past two weeks. When the crisis looks less scary, risky assets go ahead.

New UK Treasury Chief Jeremy Hunt said he was reversing nearly all the government‘s proposed tax cuts of £45 billion and would pare back an energy price-cap subsidy as he moves to reassure markets about the stability of the nation’s finances. Investors have been reassured, supporting the pound and other European currencies, including the euro.

For how long will the support last？ There is a risk premium in the price of British assets that wits call idiotic. Higher bond yields and less fiscal stimulus are likely to exacerbate the approaching recession, so sterlings gains are temporary.

Against the backdrop of EU discussions on options for setting a price ceiling for gas futures and forecasts of warm weather in Europe, the gas price has dropped significantly. The energy crisis no longer seems to be something catastrophic, it was mostly priced in the EURUSD, so, the improvement in the global situation supports the euro.

However, we should understand prices are still several times higher than last year, the German economy is pressed down, and other euro-area economies will also face a downturn. According to Bloomberg experts, German GDP will contract by 0.5% in 2023, contributing to a 0.1% decline in euro-area GDP.

Forecasts for European GDPs