EUR/USD slides under 1.0600 for first time since 2017, on course for worst month since 2015

• EUR/USD has seen further downside since the start of European trade and is now under 1.0600.
• That marks its weakest level since April 2017, with the pair on course for its worst month since early 2015.
• The latest leg lower reflects concerns about Eurozone energy supply as tensions with Russia over gas supply rise.

After falling marginally below the 2020 low at 1.06359 but then proceeding to meander sideways during Asia Pacific trade, EUR/USD’s downside momentum gathered pace at the start of the European trading session. Ahead of the start of the US session, the pair is now trading to the south of the 1.0600 level for the first time since April 2017, some five years ago. Traders attributed the most recent leg lower to concerns about Eurozone energy supply, with Russia’s Gazprom on Tuesday announcing that it would halt gas shipments to countries that refuse to pay in roubles.

Signs this morning suggest that numerous European gas companies are caving to the threat of an abrupt halt in supplies and have either already agreed to pay in roubles, or are in the process of opening new accounts at Russian banks to do so. Regardless, currency traders are upping the geopolitical risk premia priced into the euro and, at current levels in the 1.0580s, EUR/USD is trading lower by about 0.5% on the session.

That takes the pair’s losses on the month to nearly 4.5%, which would mark the pair’s worst one-month performance since the start of 2015. Russo-Ukraine/NATO tensions since the start of the war in February have, of course, been one crucial driver of the recent acceleration in EUR/USD downside. But Fed/ECB divergence and a hit to global risk appetite on central bank tightening fears has also been a key driver.

Upcoming Eurozone April Consumer Price Inflation and US March Core PCE data out on Thursday and Friday will serve as a timely reminder of the rampant inflation faced by both economies and should underscore the need for both the Fed and ECB to tighten policy in the coming quarters. But Q1 2022 GDP growth out of the US and Eurozone, also on Thursday and Friday, will underscore the divergence in economic health of the two regions. This could further weigh on EUR/USD. Bears will be eyeing a test of 2017 lows in the mid-1.0300s.